Product providers face payments scrutiny

The spotlight on fees and commissions may soon be transferred from financial planners to product providers as a result of a review of the joint Investment and Financial Services Association (IFSA) and Financial Planning Association (FPA) code on payments.

Both IFSA and the FPA have confirmed the code is under review — an exercise that is likely to see the focus shift from planner commissions to platforms and wrap fees and the bulk payments made by product manufacturers to dealer groups.

An IFSA spokesman confirmed the standards contained within the code are currently being reviewed by an internal committee.

The code, which is compulsory for IFSA and FPA members, was initially developed in 2004 and requires the use of standard definitions and terminology in disclosing payments within the wealth management industry that may impact the return or the financial advice provided to the client.

The code revisions are expected to be examined in the context of the Parliamentary Joint Committee into financial services and corporations (Ripoll Inquiry) and the Cooper Review into superannuation.

However, there are already concerns being expressed that to meet the needs of the various Government inquiries, the code review will have to deal directly with practice rather than simply altering terminologies and definitions.

One industry executive said it would simply not be sufficient to change the description of a ‘shelf fee’ to ‘fund manager payment’.

“If the changes are going to pass muster in the context of the current inquiries into the financial services industry, it will require much more than just tinkering at the edges,” he said.

The chief executive of the FPA, Jo-Anne Bloch, confirmed the joint code had come up for revision and said she welcomed the opportunity to review payments further up the value chain.

IFSA made reference to the joint code within its submission to the Ripoll Inquiry and said the guide was developed to ensure payments were being disclosed in a consistent manner across the industry to improve understanding and comparability.

The submission pointed out that the guide requires clients know what payments or discounts they are receiving when paying for advice and/or investments and the services they relate to, and that they are aware of the remuneration received by a licensee or their representative in relation to any recommendation.

As well, it said the guide ensured clients knew if fees were paid by the fund manager to a platform provider and whether fees were then paid by the platform provider to a financial advisory network.

In doing so, the IFSA submission suggested that based on such safeguards, there was no need for the introduction of regulations that might minimise the range of services provided by platforms and wraps.