The Financial Planning Association’s (FPA) Principles on Conflicts of Interest have been refined into four statements following feedback from its membership.
FPA deputy Sarah Brennan said that following the end of the consultation period on October 28, the summary of feedback showed that members were in support of the principles.
However, Brennan said members felt that the draft principles restated pre-existing fiduciary responsibilities and that this could cause confusion for members.
As a result, Brennan said the FPA decided to simplify the principles in order to remove statements that appeared as legal obligations.
Draft principles 1 and 2 have now been merged to create the first principle, which states that there must be separation of product and advice.
Principle 1 will also cover the issue of commission payments, with advisers required to offer a new, unbundled advice fee.
This includes giving clients three payment options — paying for advice up-front, making ongoing payments by direct debit, or electing to use the product, if one is recommended, as a collection mechanism.
The method selected will need to appear on the client statement and, where consumers are unhappy with the advice service provided, they will have the ability to discontinue payments made by direct debit or via the product.
The FPA is currently in discussions with the Investment and Financial Services Association (IFSA) as product manufacturers will also need to unbundle their fee structures so planners can clearly inform clients of advice, product and administration fees.
However, Brennan said that as many platforms currently operated in this manner she did not foresee any major stumbling blocks.
FPA chief executive Kerrie Kelly said IFSA had been receptive to the proposed changes, but needed to examine the issue of implementation and whether system changes within the timeframe were achievable.
The second principle states that licensees cannot offer remuneration to planners that have a product bias.
Clause 3 concentrates on corporate governance in cases where a director may have links to both an advice organisation and, for example, a product manufacturer.
In this instance, “directors have a duty to act in the interests of consumers” Brennan said.
Finally, financial planners must not recommend any product that can bring the industry into disrepute.
Following its annual general meeting on the Gold Coast, the FPA also announced that members had voted in favour of increasing the tenure of directors from two to three years as well as allowing the board to conduct online voting and create alternative membership categories.
New chair Corinna Dieters said: “It takes time for a board member to get up to speed, and we don’t want to lose them after a second year.”
