The Australian Securities and Investments Commission’s Peter Kell, the Financial Planning Association’s Dante De Gori and Westpac financial planner Louise Lakomy discuss the finer points of conflicted remuneration.
Professional Planner and the Financial Planning Association of Australia (FPA) have produced a series of videos on “Bulletproof financial planning” – a financial planner’s guide to complying with the new FoFA rules, and how adhering to the FPA’s code of professional practice can help negotiate a potential minefield.
In part three we look at conflicted remuneration, which ASIC Commissioner Peter Kell calls “at the heart of the FoFA reforms”.
“It’s all about aligning the interests of the adviser with the interests of the client,” he said.
To watch Bulletproof Financial Planning (Part 1) – Best Interests, click here.
To watch Bulletproof Financial Planning (Part 2) – Scaled Advice, click here.
To read the consultation paper on Conflicted Remuneration, click here.
Everyone agrees that client and adviser objectives must be aligned and that investment product revenue is a conflict. Where the whole issue loses credibility is the classification of platform structures being investment products.Platforms, SMSF, Industry Funds, Corporate Funds and even the Politicians super funds are administration services NOT investment products, period. For devious political reasons, only retail platform revenue is considered ‘conflicted’ whilst the Banks, Life Companies and Industry Funds continue to cross subsidise their aligned and internal advice practices with platform revenue to make a mockery of the debate. Lets don’t forget that SMSF administration is also a platform process and that also gets overlooked by the Minister as a strategy to cross subsidise advice. Apparently he would prefer thousands off back yard administrators where clients are swimming outside of the APRA flags instead of the major institutions looking after consumers as administrators and custodians. FOFA was such an opportunity to protect consumers and help the industry, a great shame it has been lost due to political favours taking precedence over commom sense.
I agree with both Matt Ross and Peter Vickers. Maybe the FPA should change it’s name to FCA, Financial Client’s Association, with the client’s interests put first? The Conflicted remuneration debate is a complex one. Irrespective of how much you charge a client or how you charge a client, if the client’s interest were the number one priority at the start of the advice process, and at the finish, then the client wins. If the client wins, naturally the adviser wins. It’s simple, always put your client first. I have for the last 28 years. Cheers, John Birt – RADAR
All remuneration is conflicted. I need money to pay for my skiing holidays and my daughter’s wedding. How do I get it? By selling by intellectual capital to any people that are willing to pay me for it. Thus there is a conflict of interest.
Again it is the terminology that is wrong. It is also not about “complying with FOFA”. If this is what the FPA or your publication is trying to do then you miss the point of a professional practice.
The real problem is that there are products out there that need salemen to sell them. Cars, life policies, investments etc. ( Pleae note that I own shares in companies that need good salemen in order to pay me high dividends eg Westpac, Suncorp).
The differentiation is between salemen and advisors. And as stated there is nothing wrong with either. The only problem is that it is easier to make big bucks by being a saleman rather than an advisor. Except if like me you are a realy good advisor.
I think I agree with Peter…Peter are you suggesting that the terminology issue comes down defining what a salesman (let’s use the term “broker” instead) and an adviser is?
Totally agree with the point that there is nothing wrong with either. FOFA is about transparency in my view, it isn’t about conflicted remuneration.
No argument from me that the financial services industry probably needs both salespeople and financial planners/advisers. Does everyone agree then that it would be a positive step to make a distinction in the marketplace by enshrining financial planner / financial adviser? This doesn’t denigrate the work of financial product salespeople but I believe it would help the consumer understand the difference.
It would be much simpler if there were 2 distinct titles enshrined that define the 2 very different roles.
i.e Financial Planner = Strategy, Technical and Strategic PLANNING advice only provided to the consumer in a SOA. Consumer is paying for the strategic advice to meet goals and objectives.
Finacial Adviser = Advises the consumer on the appropriate product to purchase or use to implement the strategic advice provided by the Financial Planner. Financial product advisers.
“It’s all about aligning the interests of the adviser with the interests of the client”.
Funny how the FPA has been around for 25 years and didn’t think once that it was important to enforce rules to ensure that the interests of the adviser were aligned to the client. The only way to get some advisers to put their clients interest first is to enforce legislation.
I guess that this is the result when the interests of product providers has been put ahead what has been in the best interests of clients, advisers and the future of our profession.
The lack of leadership that the FPA has shown in the past continues in these videos. Dante says that a third party volume bonus “may be conflicted”…I’m simply gobsmacked that anyone could even pretend to believe this to be true.