An old colleague of mine from Melbourne, Australia, sent me some information that his country's financial planners have just implemented new guidelines to help prevent conflicts of interest and to improve confidence in the financial planning sector.

Actually, he says that The Financial Planning Association's (FPA's) "Principles to Manage Conflict of Interest" has become effective over an 18-month period that commenced July 1. Its topics cover the cost of advice, remuneration, benefits, product suitability, and corporate governance within a financial planning business. Jo-Anne Bloch from the FPA, points out that the guidelines should help the more than five million Australians who use a financial planner.

According to John Anning, FPA's policy and government relations manager, the guidelines were primarily designed to help members meet the obligations that were already established in the FPA Code of Conduct and the Corporations Act. "These are not new obligations," he says. "These principles are to help members manage conflicts of interest."

What are they?

  • Principle One: Members must include the cost of financial planning advice as a separate fee in the statement of advice. In addition, it requires that the total fees paid for ongoing advice must be disclosed regularly, and that is meant to be on an annual basis.
  • Principle Two: Requirement that members undertake due diligence to ensure that they are offering products that suit the needs of the client and are not those that "bring the industry into disrepute."
  • Principle Three: No remuneration or benefits to be paid by a member to one of their financial planners should be biased against or not in the best interests of the client.
  • Principle Four: There must be separate corporate governance arrangements for members and all or any related financial services provider.

FPA's Professional Standards and Ethics Committee (PSEC) will administer these principles, which is also responsible for the FPA Code of Ethics and Rules of Professional Behavior. And, the FPA's Complaints and Disciplinary Scheme will handle specific allegations of non-compliance by a member. For non-compliant members, the fines can be rather severe such as $5,000 to $20,000, or even expulsion.These principles were adopted this past March and were designed by PSEC and a group of FPA members known as the Conflicts of Interest Taskforce.
According to Bloch, "I think what we'll see an extension of is the fact that consumers will start understanding the value of advice and the cost of that advice."

Certainly worth noting.

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