The underlying structure of some platform products could impede the broad objective of the Financial Planning Association’s (FPA) conflicts of interest principles, which require separate disclosure of advice and product fees.
Some industry commentators suggest platform providers will determine the success of the principles in practice, since the majority of retail investment flows (that is, non-superannuation) are currently invested in wholesale trusts via platforms.
The first of the FPA’s four conflict principles requires the cost of advice to be disclosed annually to clients separately from product related costs, from January 1, 2008.
It also calls for this cost to be disclosed annually as commission if it cannot be separately identified, varied or terminated by the client in agreement with their adviser.
However, commentators suggest the ability of an adviser to disclose remuneration in accordance with the FPA principles will depend on whether it is implicitly or explicitly structured within their aligned platform.
When remuneration is implicit, they say, adviser commission is paid through the platform to the adviser/dealer group as part of the fees and charges total, and cannot be separated from total platform fees and charges.
“With platforms that have commissions built in, a client pays one total fixed fee, and that includes the commission paid to the dealer group and then the adviser,” BT Advice Services head Chris Davies said.
“In these cases, commissions are implicitly structured, so even if the client terminates the adviser relationship, the client will have to continue to pay the product provider the same fee.”
Alternatively, adviser remuneration can be disclosed in accordance with the principles when fees are explicit, as the remuneration to the adviser/ dealer group “starts at zero and is dialled up”, he said.
In this case, a client can leave an adviser without continuing to pay their fees to a dealer group by retaining investments on the platform product, he said.
The other potential impediment to the principles is that while the more modern platforms can often facilitate in-specie product transfers, the older-style products generally do not.
This means some clients with investment assets on platforms aligned to an adviser risk incurring a capital gains tax (CGT) event, negative or positive, by changing adviser.
This is because, in some cases, clients will transfer their investment assets from the aligned platform of their previous adviser to the aligned platform of their new adviser.
A CGT event will be triggered where there is no in-specie transfer capability between the platforms, and the client decides to proceed anyway with the asset transfer on the change of adviser.
