Entertainment expenses in the spotlight
The happy days of all-expenses-paid trips and free tickets to the country’s top events will end should certain Future of Financial Advice (FOFA) reforms relating to soft dollar benefits be legislated.
Treasury has proposed a ban on soft dollar benefits that involve entertainment or gifts valued over $300. The alternative remuneration registers of some of the country’s biggest financial services groups revealed that the cost of entertaining individuals most often exceeded that threshold, with some packages to sporting events costing nearly $4,000.
MLC’s register revealed that overall the value of event packages and tickets for its guests to the Australian Open in January 2010 neared $370,000. MLC also spent nearly $110,000 on packages and tickets for the last Melbourne Cup. OnePath spent over $61,000 on tickets for advisers to the U2 concert last November. On its 2010 register, IOOF spent nearly $16,000 on tickets to the Caulfield Race Day. These companies are not alone when it comes to significant expenditure on entertainment, but their spending does raise the question: what is appropriate?
“The FOFA package brings into stark focus the intent of these activities and events, and whether they in fact distort advice outcomes,” said Association of Financial Advisers chief executive Richard Klipin (pictured). “There’s clearly a place right across the Australian business community for relationship management with a marketing focus – the question is what is reasonable?”
Klipin said the $300 ceiling per person per event was not unreasonable.
Mark Rantall, chief executive of the Financial Planning Association (FPA), said his association, along with the Financial Services Council (FSC), had long advocated for the threshold as part of its joint Industry Code of Practice on Alternative Forms of Remuneration. However, Rantall doubted that advice was actually being influenced by advisers attending events. This viewpoint was supported by Klipin.
Klipin said that relationship-building was invaluable for advisers who wanted to ensure they had strong supplier relationships – a key competitive advantage in the marketplace, he explained.
IOOF general manager of distribution, Renato Mota, felt there was a lack of acknowledgement in the reforms as to the role that relationship-building played in this industry. Nonetheless, he said the industry would find other ways to build relationships with advisers, adding that IOOF would support removing perceived soft dollar benefit bias if it improved the perception of the profession.
Rantall suggested there was likely to be a bigger focus on education-based events in the future.
An MLC spokesman said the group was unable to state whether more money would go towards educational initiatives until further details of the legislation emerged. MLC welcomed clarity on soft dollar benefits, the spokesperson said, adding that while the industry disclosed soft dollar payments under the FPA/FSC code, there had been some misunderstanding about these benefits and how to classify them.
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