Tough new rebate disclosure guidelines for planners

Financial planners who receive payments for using investment platforms will face tougher disclosure requirements under new guidelines being considered by the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA).

The guidelines, which could be endorsed within weeks if approved by the two associations, require planners to inform their clients that they are receiving ‘commissions’ if they receive payments relating to their use of a particular master trust or wrap.

While financial planners are already required by law to disclose such payments to their clients, they are usually referred to as rebates — a term that was considered potentially misleading for consumers.

“The FPA and IFSA believe a higher standard of disclosure — one that more clearly defines and describes rebates and other related payments — will improve investors’ understanding and provide increased transparency,” a discussion paper proposing the new guidelines says.

Under the guidelines, only payments to advisers which are subsequently passed on to consumers will be allowed to be called rebates.

The guidelines will cover both payments made directly from platform providers to financial planners and those made by fund managers through platforms to advisers.

“Any payment which is received by a financial planner or licensee from a platform or fund manager, which is implicit in the price and not passed straight through to the consumer, should be disclosed to the consumer as ‘commissions’,” the paper says.

The moves follow a similar crackdown by the two associations on soft dollar commissions last month, which saw financial planners banned from accepting a range of alternative remuneration payments, including free travel and accommodation to conferences that are ‘volume sales’ related.

The FPA is also working on a further set of guidelines to cover conflicts of interest faced by financial planners.

FPA board member and Brennan Partners managing partner Sarah Brennan, who has been heavily involved in drafting the proposed guidelines on platform rebates, told Money Management they were designed to protect consumers.

“I think that generally consumers do not understand what a rebate is. People tend to think a rebate is something you get back,” she says.