van Eyk calls for FOFA research disclosure
Financial planners should have to clearly disclose the remuneration models of their research providers to clients, according to research house van Eyk's submission on draft Future of Financial Advice (FOFA) legislation.
The requirement should come under the 'best interest' test proposed in draft FOFA legislation, so clients would have an assessment of the research advisers relied on to make their recommendations, according to van Eyk chief executive Mark Thomas.
The best interest test applied to advisers needed to take greater account of the links in the advice chain and disclose how product ratings have been obtained, he said.
A pay for ratings model where product providers pay to have funds rated creates a conflict of interest where funds are not being rated purely on merit, which is not in the interests of financial advisers or their clients, Thomas said.
When an adviser recommends a fund, there is currently no requirement to disclose within a statement of advice how the underlying research and product rating was paid for or any conflicts of interest, van Eyk stated.
The van Eyk submission suggested that where a dealer group or adviser has relied on a research house that utilises a 'pay for ratings' business model, it was in the client's best interests that the adviser be required by law to clearly and explicitly disclose that fact in plain English in the statement of advice given to a client.
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