Software providers address conflicts priority rule


By Krystine Lumanta

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Financial planning software and technology providers have taken different approaches to the conflicts priority rule as part of the Future of Financial Advice (FOFA) best interest obligation.

The conflicts rule, which was introduced in December 2012 as part of ASIC’s “Regulatory Guide 173 Licensing: Financial product advisers – Conflict and disclosure”, stated “if an advice provider with a conflict of interest is unable to prioritise the interests of the client, we expect them to decline the advice”.

Last week, financialobserver reported the conflicts priority rule had gone largely unnoticed by the industry, with dealer groups turning to providers to address the issue.

Midwinter managing director Julian Plummer said the software provider had met the challenge head on with its Advice OS offering.

“What we’ve done is we’ve created a number of new features to handle best interest and we have a best interest matrix, which gives the adviser the ability to illustrate what would happen in a variety of recommendations and that’s including the scenario when a client does nothing,” Plummer told financialobserver.

“It’s a truly quantitative approach and backed by our own independent research.

“So in the case of product advice, the benefits and disadvantages of each recommendation are easily determined by the adviser and that’s our core approach to tackling best interest and it definitely helps advisers handle the conflicts priority rule.”

He said Midwinter’s approach to building Advice OS was to give advisers the means to justify their advice.

“For advice where conflicts generally arise, which is typically found in product recommendations, we give the adviser the ability to show as many scenarios and alternative recommendations as possible,” he said.

“The ultimate aim for our approach and to the conflicts priority rule is to make the advice as transparent as possible.

“It shows what benefits accrue to the client.”

The software recorded all the steps the adviser had taken to get to that advice outcome, but the real benefit would be where the software provider worked closely with the licensee and its compliance department, he said.

“How close the software provider works with the licensee [is vital] to make sure that it follows their process and procedures in regards to this rule because if it’s not in tune, it’s not going to work very well,” he said.

In addition, he said he was surprised at how little the conflicts priority rule came up in adviser discussions.

IRESS Market Technology senior business development executive Michael Kinens said the company would refrain from building a specific solution to address the conflicts priority rule, as its Xplan software was fundamentally user-driven.

“The view that one dealer group has taken on could be completely different to the view that another group might have, so in terms of how it might be implemented, the software allows them to configure the rules they want to enforce and how they might work,” Kinens said.

“It can look very different from one group to the next.”

Xplan already had the flexibility and capability to create comprehensive cash-flow modelling for clients for pre and post-retirement planning as well as providing comparison tools, he said.

“What we might choose to do is present examples of how they might want to use it to drive best interest and monitor it,” he said.

“But ultimately, if you look at all the regulations, they’re open to a little bit of interpretation in terms of how you go about applying them.

“I don’t think it’s sensible to [offer] a hard and fast method that needs to be followed.”

IRESS would continue with its position until there were specific demands from its clients, he said.

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