Soft dollar bans could affect marketing

While the soft dollar spotlight has been firmly shone on all-expenses paid trips and lavish gifts given to financial advisers, the Treasury’s proposed ban on these payments could affect the way some practices communicate with their clients.

The proposed ban would eliminate all soft dollar benefits over $300, with the ban likely to include marketing payments used to help some practices with advertising, brochures, signage and client mail-outs. There will also be a frequency test to ensure repeated small payments are not made.

Financial Planning Association (FPA) chief executive Mark Rantall said that while the details had not been worked out, the banned list was also likely to include sponsorship by product providers of educational client seminars and other events in the name of client relationship-building.

It is further understood that the ban could stretch to payments made from parent companies to subsidiaries, which would affect some of the larger players in the industry.

For example, the alternative remuneration register of ANZ-owned OnePath reveals it paid out over $50,000 of marketing support payments in 2010, with close to $30,000 of that going to another ANZ-owned company, Millennium3 Financial Services.

It also remains to be seen whether programs like MLC’s ‘Meet the Managers’ initiative would be allowed under the proposed changes. In 2010 alone, MLC’s soft dollar register reveals it spent close to $50,000 on flights and accommodation for advisers to meet fund managers.

For the large part, the Government’s proposals follow the Financial Services Council’s (FSC’s) and the FPA’s joint industry code of practice on alternative forms of remuneration.

However, FSC chief executive John Brogden (pictured) said the definition of soft dollar that has been proposed by Treasury goes further than the code to capture all benefits, not just third party payments.

“Further, it also captures monetary benefits, which we would argue are already covered in the scope of the conflicted remuneration ban,” Brogden said.

Although there is still much work to do on the detail of the proposed bans, many of the industry associations – including the FPA – have welcomed the Government’s move to provide greater clarity around what is acceptable.

“There is always potential for conflict in these types of payments,” Rantall said.

“So having clarity around whether or not they can be accepted is a positive thing. If there is a conflict of interest with any of these things, then they should be avoided,” he added.

But the Association of Financial Advisers (AFA) chief executive Richard Klipin said that while he thought bans on payments over $300 were appropriate, he wanted to make sure there would be a level playing field across industries.

“Clearly this is on the table for debate, and the AFA looks forward to being part of that debate to ensure there are sensible consumer-focused outcomes that also recognise standard business practice,” he said.