MLC has thrown its support behind the Financial Planning Association’s (FPA) advice-based fee model.
The FPA Principles to Manage Conflicts of Interest will become part of the association’s professional standards on July 1, requiring members to identify the cost of advice and come to an agreement with their clients over what the fee for advice should be.
In a speech to the Committee for Economic Development of Australia last week, MLC chief executive Steve Tucker urged financial advisers to structure their business models to accommodate fee-for-service.
“I believe the decision to include a fee-for-service option needs to be considered by all financial advisers,” he said.
“In practical terms, this means the unbundling of advice, product and administration fees as separate line items on a client’s annual statement.
“I want to make clear that I am not advocating that commissions end tomorrow or be banned…rather, I am urging advisers to consider the long-term benefits of a fee-for-service model and get ahead of the curve.”
FPA chair Corinna Dieters said Tucker’s comments were a ringing endorsement of the association’s new principles.
“It is clear MLC and a number of other FPA members are moving in the direction of an advice-based fee model,” she said.
“There is growing awareness among consumers that financial planning advice is a professional service which is valuable in its own right.
“Increasingly, clients will decide how they choose to pay for this advice.”
The FPA’s new principles are made up of four key requirements:
1. The cost of financial planning advice should be separately identified and should be disclosed to clients on a regular basis.
2. All FPA members must offer products that suit the needs of the client and do not bring the industry into disrepute.
3. No remuneration or benefits paid by a FPA principal member to one of their financial planners should be biased or not in the interests of the client.
4. Separate corporate governance arrangements should govern FPA principal members and any related financial services provider.
Principles three and four become effective on January 1, 2007.
