Soft dollar review ignores hard facts

A review of the IFSA/FPA soft dollar code has whitewashed serious flaws in the system identified by an Investment & Technology Magazine investigation last year.

In a statement released last week the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) said reviews of their ‘Joint code of practice on alternative forms of remuneration’ had “shown almost universal compliance levels, demonstrating that the Code has improved disclosure and furthered best practice”. The statement contrasted sharply with the findings of Investment & Technology, which last year requested the soft dollar registers of 90 IFSA members and almost 400 principal members of the FPA. Over 270 of the 387 principal members of the FPA contacted by Investment & Technology failed to supply their public soft dollar registers as required by the Code. Also nine members of IFSA failed to supply a register. A further 20 FPA principal members either refused to supply a copy of their soft dollar registers – agreeing only to an on-site viewing – or cited privacy rules as preventing any public access to the documents. In a letter sent to Investment & Technology on November 29 last year, Jo-Anne Bloch, head of the FPA, offered to help determine why the response rate from its members was so poor. “I understand that you have formally sought copies of Code Registers from a number of our members and may still be waiting to receive some of these documents,” Bloch wrote. “If you are able to let us have the names of those members who have yet to comply with your request we will endeavour to determine the reason for their failure to respond.” The Code requires all IFSA/FPA members to supply a copy of their soft dollar registers to any member of the public within seven days of a request. Only 30 IFSA members managed to supply their soft dollar registers within the seven-day deadline. An analysis of the 46 IFSA registers gathered by Investment & Technology also revealed widespread variations between members of which items should be disclosed as soft dollar. Despite these findings both Bloch and Richard Gilbert, IFSA CEO, said last week the soft dollar code was functioning well. “The review has reinforced the fact that the Code is working effectively and that consumers can feel confident in the transparency of alternative forms of remuneration, with registers available for inspection from all those who accept ‘soft dollar’ remuneration,” Bloch said in a statement last week. Gilbert also praised the “efficacy of industry standards” demonstrated by compliance with the soft dollar code. “Media focus on adviser remuneration and periodic testing of the registers by investigative journalists also indicates that the Code is working well, however, this joint IFSA/FPA assessment was important to establish that the Code doesn’t warrant extensive overhaul”;, he said. Neither Bloch nor Gilbert were available for comment. However, John O’Shaughnessy, IFSA deputy chief executive officer, said the IFSA review addressed the Code from a policy perspective only and was not intended as a full audit. “We didn’t compete with [Investment & Technology’s] audit approach – they’re for two entirely different purposes and we’re not contesting the [magazine’s] findings,” O’Shaughnessy said. “We only contacted half a dozen compliance managers to check they knew what the Code requires.” He said IFSA had amended the Code to remove the potential for ambiguity. In their reviews of the Code both the FPA and IFSA used annual member compliance survey data. The FPA also contacted 60 principal member firms at random while IFSA surveyed compliance heads in six member companies. Investment & Technology’s expose of the soft dollar code was published in the December 2006 edition of the magazine and is available online at www.investmenttechnology.com.au