13 March 2006 
 
 
The recent coverage regarding Westpoint’s commissions and disclosure in the financial planning industry again raises the issue of remuneration models and the conflict of interest. The Institute of Chartered Accountants reiterates its position in regards to encouraging a fee for service approach.  
 
The Institute’s push for a fee for service approach echoes the Australian Securities & Investments Commission (ASIC) recent call for greater transparency on commissions.  
 
The Institute’s Manager of Financial Planning and Superannuation, Hugh Elvy said recent statements in regards to capping and benchmarking of commissions may provide an improved solution, however it will not resolve the ongoing issue of conflicts of interest. The fact that there can be variations in commissions will inherently cause a conflict of interest, irrespective of capping and disclosure.  
 
“It appears that Westpoint is an example of how the conflict of interest between the needs of the client and the self interest of the adviser can impact on the financial planning process and therefore the investing public.’ Mr Elvy said.  
 
“The general public often places a high level of trust in financial planners and advisers. It is therefore critical that the financial planner provides a service that cannot be seen to be influenced by conflicting interests. Whilst disclosure of fees and commissions is imperative, it is just as imperative to ensure the client understands that there is no incentive for planners and advisers to favour one investment product over another.  
 
“At times it can be all too easy for a financial planner to have met “tick a box” obligations of disclosure without the client having a full understanding that some investment products offer higher remuneration than others.  
 
“The introduction of a ‘fee for service’ approach, such as that advocated by professional accounting bodies, provides a more transparent approach which allows consumers to more confident as to the independence of the planner or adviser  
 
The Institute strongly recommends that when consumers are engaging a financial planner, they assess the remuneration being paid on the products being recommended against other similar products, understand the relationship between the financial planner or adviser and the product provider and understand the advice being provided.  
 
The Institute’s message follows the launch of its Joint Financial Advisory Standard, which was released to its members in October last year, which encouraged a fee for service approach as being more consistent with the principles of professional independence.