Perception of conflict of interest serious as the real thing

Advisers need to be aware not just of conflicts of interest, but also perceived conflicts.

Monday, November 16th 2020, 7:41AM

by Daniel Smith

“If someone perceives a conflict of interest in your business you must treat it as such whether there is truth to it or not.” That was the advice given by Karty Mayne of Rosewill Consulting at an FSC: Get In Shape webinar lat Friday.

The event collected industry leaders which included Michael Hewes, manager, supervision at the FMA; Alistair Robertson special counsel, financial services from MinterEllisonRuddWatts; and Mark Banicevich of the FSC.

Mayne’s point, that perception of a conflict of interest should be treated as just as serious as the real thing comes after a key alteration in the wording of the regulations. The wording altered the definition of a conflict of interest to “any interest of the person giving the advice … that a reasonable client would expect to materially influence the advice given”.

The change in wording came after consultation with the industry and it requires advisers to put themselves in the shoes of the client when considering what constitutes a conflict of interest.

The other key point that Mayne said was critical is the issue of “related parties” to advice, namely the product providers. Mayne said that advisers need to “make sure you understand the related party contracts. They are key to be aware of.”

The related parties element is a risk across relationships both personal and with financial institutions. Importantly for the adviser any material or opportunity given to the adviser from the product provider must be disclosed in a way that the client understands at the correct time.

Hewes said that, “from the FMA’s perspective these related parties contracts are something to really focus on”.

Related parties influencing advice has been something the FMA have been looking at since May 2018’s conflicted remuneration report, says Hewes.

“We have been focussing on ‘soft commissions’,” Hewes said, “anything from company discounts, professional training, upskilling, business trips, accommodation, flights could all be influencing the given advice. If there is incentivisation it needs to be directly linked with customer outcomes.

“This is all about transparency and making sure the client understands. With the new disclosure requirements now is the time to bring this to the fore.”

And as Banicevich said, “disclosure documents can be ripped up and thrown in the rubbish come March 15”. The changing systems of disclosure coming on March 15 are also coming with more information that advisers will need to disclose.

For any advisers unsure of what they need to be disclosing, Mayne makes it simple. “If in doubt, don't have any shades of grey. Advisers must be transparent to clients regarding their relationship with product providers. They may even have obligations to whistleblow to the FMA if they see behaviour that does not align with these standards.”

Banicevich says that “conflict of interest existing is not the same as having a conflict of interest affect your advice. These processes are about transparency and making sure we have a system that allows for client success.”

Tags: Disclosure FMA FSC new regime