TheFinancial Planning Association(FPA) has reacted strongly to claims from theAustralian Prudential Regulatory Authority (APRA)that commission based advisers compromised the interests of clients stating the regulator is commenting outside its authority.
Speaking at a conference on corporate governance earlier this week APRA executive general manager for policy, research and consulting Charles Littrell said there was a conflict in distribution due to the use of financial advisers who are mainly commission-based.
Littrell said this conflict of interest poses substantial challenges in achieving good standards of corporate governance as adviser remuneration is drawn from the investor and then moves through a number of product advisers before retruning to the adviser raising the question of who pays the adviser and who they work for.
FPA chief executive Ken Breakspear says APRA was commenting on issues outside its jurisdiction and expertise and should cease to do so. Furthermore he described the comments as “outlandish and sheer conjecture”.
“APRA has no experience in regulating advisers to be in a position to make any substantive judgement about their conduct or the appropriateness of their remuneration structures,” Breakspear says.
“Financial planners are required to fully disclose their commission arrangements and any other incentive arrangements that exist with clients before any business is transacted according to the Financial Services Reform Act (FSRA).”
“Such speculative comments have the potential to incite a crisis in consumer confidence in the financial services regulatory system.
However APRA has moved to clarify the comments with Littrell stating they were made “in the context of commission-based investment advisers who receive both monetary and non-monetary reward to place investors in specific products.”
“In these cases, there can be a conflict of interest between the adviser and the investor, which needs to be managed carefully.”
Littrell also said this at no time did he imply that such actions were illegal nor was the retail investment industry unable to deal with these issues.
He went on further to state the regulators concern with commission based financial advice was the possibility that a high risk investment product could grow swiftly and cause instability within insurance company, superannuation fund or entity regulated by APRA who offer the product and force the intervention of the regulator.
