Market will force product changes: FPA

The Financial Planning Association (FPA) is expecting financial services providers to modify their products in response to market demands for separately disclosed product and advice fees.

The admission comes even though the FPA principles on conflicts of interest do not specifically require product changes.

Where product providers don’t split fees, planners will not be bound by the FPA requirements.

“There are already a number of investment facilities around that have this type of inbuilt flexibility within them, so I’d say on the basis of what’s already happened that more will occur,” said FPA chair Corinna Dieters.

The principles draw a distinction between recommendations on products that allow advice fees to be separately negotiated with and identified to the client, and commissions that are bundled with other fees at the product level.

Dieters said commissions would not be banned, as the FPA had no way of forcing fund managers to change their products to allow this.

“The commission is not something that we can necessarily turn off in any definite way. We don’t control the commissions that are from the fund managers in that respect.

“What we’re advocating is that the advice fee is something that’s negotiated between the client and the adviser and therefore it can be discontinued if that is agreed,” she said.

FPA policy manager John Anning said the FPA had not tried to influence the product manufacturers to change existing commercial arrangements, but said consumers would be attracted to products where advice fees were disclosed separately, exerting market pressure on manufacturers.

The Investment and Financial Services Association (IFSA) welcomed the FPA’s conflicts principles.

IFSA chief executive Richard Gilbert said: “[IFSA] members who own dealer groups will obviously take the code very seriously and comply with it.”

MLC general manager financial planning Matt Lawler said MLC had already made product level changes to make it easier for advisers to comply with the principles.

Lawler said MLC believes the number of advisers operating fee-for-service models would rapidly increase, with between 70-80 per cent of advisers providing fee-for-service advice by 2010.