The board of the Financial Planning Association of Australia has formally ratified a consultation paper on planner remuneration under which all FPA members must abandon product commissions by July 1, 2012.
The original consultation paper, Financial Planner Remuneration, was released in May and has since attracted more than 250 responses. Not all have been supportive of the paper’s proposals. The paper’s proposals are based on six "principles for financial planner remuneration" (see below).
The final version of the FPA’s remuneration policy states: "It is important that remuneration in the financial planning profession is clear, concise, comparable, and more than anything else, is aligned to a service that delivers value.
"This policy sets out a high level framework for remuneration. It does not establish the amount of remuneration a professional receives, nor does it stipulate which model a member should progress as long as the model, from 1 July 2012, is a client directed payment model which meets with the overall principles and definitions," it says.
"This policy also only applies to remuneration paid for by the client to the financial planner, and it does not address payments made by product providers to AFSL?s or financial planners. This will be addressed through the two Codes on Alternative Remuneration and Rebates and Related payments that we have in place with IFSA."
The FPA remuneration policy also does not include risk products.
"The Board also determined that risk products would not fall within this policy until further consideration was given to the appropriateness of applying the six principles to risk products," the policy paper says.
However, a member working group has been set up to address "appropriate remuneration principles" for risk products.
The chief executive of the FPA, Jo-Anne Bloch, says a second working group has been set up to examine corporate superannuation and to see if it’s possible to "align the FPA and IFSA policies and to make sure they work with resepact to corporate super".
The FPA expects both working groups to report back "by early 2010".
The FPA says it has set up "a transition committee to develop information, education, training and other necessary tools and programs to enable members to transition to the new remuneration policy".
"Members will be made aware of progress in regular communications, and by visiting the Professional Services section of the [Association’s] website," it says.
Six Principles for financial planner remuneration
1. Clients must be able to understand the fees they are paying
2. Clients must be able to compare the fees they are paying
3. Clients must be presented with a fee structure that is true to label
4. Clients must be presented with fees that are separated between advice and product
5. Clients must agree the fee with their financial planner and can request that the fee is switched off if no on-going advice is required
6. Clients, rather than product providers, should pay for financial planning services, so as to remove potential for bias.