The Platform Switch and the Fiji Conference
Priya is a financial adviser at a licensed FAP. Her client, Tom, aged 58, wants to move $180,000 from a legacy managed fund into the FAP’s preferred platform before he retires at 65. The existing fund charges 0.85% per year and has no exit fee. The platform charges 1.15% plus $600 per year. The platform provider will pay Priya’s FAP a 0.35% ‘transition payment’ ($630) and a 0.25% annual trail commission; it also invites Priya to a Fiji conference if $2 million of new platform money is placed by 30 June. Tom’s existing fund has a 10-year track record and a lower turnover strategy. Priya’s file contains no replacement-business analysis, no fee comparison and no record of Tom’s objectives beyond ‘consolidate for simplicity’. Tom says he trusts Priya and wants it done this week. Priya’s manager says the transition payment is ‘standard industry practice’ and need not be mentioned because it is paid to the FAP, not to her personally.
1. What regulatory and ethical issues arise, and what must Priya do before implementing the switch?
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The switch is replacement business, so Priya must be able to show it is suitable and in Tom’s interest. She needs to establish his objectives, financial situation, risk profile, time horizon and need for liquidity, then compare the existing fund and platform on fees, risk, features, tax and exit costs. On the figures given, the existing fund costs about $1,530 a year (0.85% of $180,000). The platform costs about $2,670 a year (1.15% plus $600), so it is roughly $1,140 a year more before any trail commission is considered. That does not automatically make it unsuitable, but it must be justified.
The transition payment and trail are conflicted remuneration. The Fiji conference is a soft-dollar incentive. The Code’s standards on client care, conflicts, incentives and records require Priya’s FAP to have an incentives policy, manage the conflict and disclose it clearly. The manager is wrong that payment to the FAP removes the need for disclosure. Priya should also check the FAP’s gift and benefits register and whether accepting the conference is permitted.
Before implementing, Priya should complete a replacement analysis, document why the switch meets Tom’s goals, disclose all remuneration and benefits, and recommend a cheaper or better alternative if one exists. If she cannot justify the switch, she should not recommend it.
2. Tom insists and says he will complain if Priya does not move the money. How should Priya respond?
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Priya should not let a complaint threat override the suitability assessment. She should explain in plain language what the switch costs, what she is paid, and why she is not yet satisfied it is in his interest. She can offer to compare a cheaper platform, keep the existing fund, or switch only part of the money. If Tom still wants to proceed without advice, Priya must check whether her FAP permits an execution-only or directed instruction, and ensure Tom understands that no suitability assessment is being made. She must not describe a conflicted switch as suitable merely because Tom instructed it.
She should escalate the incentive issue to her compliance manager or the FAP’s nominated supervisor, document the conversation and Tom’s instructions, and avoid placing the transition payment or conference in the file as a reason to proceed. If the FAP’s processes cannot manage the conflict, Priya should decline to act. A client complaint is a risk to manage, not a reason to give poor advice.
3. What records and disclosures should be on file after the meeting?
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The file should record Tom’s objectives, financial situation, risk profile, existing arrangements, the replacement analysis, the fee comparison, the product comparison, and the reasons the recommendation is suitable. It should include written disclosure of the transition payment, trail commission, any soft-dollar benefit and the Fiji conference eligibility, plus evidence that Tom understood the conflict. The FAP should record its decision on whether the incentive may be accepted under its incentives policy and gift register.
If Tom gives a directed instruction, the file should show exactly what he was told, what advice was and was not given, and his confirmation. If Priya declines to implement, the file should record why. A review date and review triggers should also be set. These records matter because a later dispute will turn on what was disclosed, what alternatives were considered and whether the advice was in Tom’s interest.