FPA expects minor fallout from new conflicts policy

The bulk of the Financial Planning Association (FPA) members are supportive of its new conflict of interest rules but some fall-out will be inevitable, according to John Anning, FPA head of public policy.

“It would not be unexpected if some members left the FPA but the feedback we’re getting is that most support the conflict of interest guidelines,” Anning said. “Although some members disagreed with the new rules the TaskForce [on conflicts of interest] made a unanimous decision.” The new conflict of interest rules throw out a significant challenge to current commonplace industry practices such as incentives to use certain platforms or buyer-of-last-resort agreements based on business placed with product providers. As well, the requirement to clearly separate the financial advice fee from the cost of product in a statement of advice and a new obligation to regularly disclose ongoing fees will highlight the contentious issue of commission payments. Anning said the FPA has chosen not to take a stand on the fee-versus-commission debate but is encouraging the development of “fee-for-service in the true sense”. “We’re arguing for transparency on the cost of advice so consumers can have a say in what they pay their adviser and how they pay them,” he said. “This will certainly empower consumers to monitor the quality and cost of their advice – if they are dissatisfied it will be easier for them to vary the advice or change planners.” The conflicts of interest principles, which come into effect from July 1 this year but have staggered implementation dates for various rules, also carry with them punishments ranging from a $5-20,000 fine and/or expulsion from the FPA for transgression. “Our first priority is to get members to comply with the rules,” Anning said. The FPA will monitor the process with member self-assessment forms, some random audits and will act on any specific complaints. Anning said the FPA did consult with IFSA when drafting its conflicts of interest rules although no formal joint initiative had been planned. IFSA is currently reviewing its own conflict of interest principles. “There needs to be some complementarity between the two [FPA and IFSA conflict rules],” he said. The main purpose of the new conflicts rules, according to Anning, is to raise the standards of advice across the board. “The origins of the conflicts rules were to help our members comply with PS181 [FSR rule on conflicts of interest disclosure] but as the Taskforce developed we realised we should be looking beyond to see where the industry should be in 5-10 years’ time.”