Conflicts of interest and product replacement advice
How a South African financial planner discloses conflicts of interest under the FPI Code and what it documents before advising a product replacement.
By Achekam · · 5 min read · For Financial services businesses in South Africa
Few pieces of financial advice draw more scrutiny than "cancel what you have and take this instead". A client with a ten-year-old endowment or a living annuity on an older platform may genuinely be better off moving. They may also pay penalties, or give up protections and cover they will never get back, while the adviser earns new commission on the replacement.
The Financial Planning Institute of Southern Africa (FPI) Code of Ethics and Practice Standards deals with both halves of that problem: the conflicts a planner has to disclose, and the analysis that must exist before a replacement is recommended. This article walks through the relevant rules and the paper trail that shows a practice followed them.
Start from the client's side of the table
The Code's foundation is simple to state and hard to live by. It requires members to place clients' interests first and not to put personal interest or advantage, in any form, before them. The FPI adds that professional members who break the Code's rules face disciplinary action, and that members are ethically obliged to report unethical behaviour by fellow professionals.
Every rule below is a specific application of that principle. When a situation is not covered by a specific rule, it is still the test.
Disclosing conflicts: actual, potential and perceived
FPI rules 7.32 and 7.33 require members to advise clients in writing of any actual, potential or perceived conflict of interest. The three categories cover more ground than many practices assume:
- Actual. The practice earns commission from the product it is recommending, or is owned in part by a product provider.
- Potential. The adviser has a sales target or incentive with one provider that could shape future recommendations.
- Perceived. The adviser's spouse works for the provider, or the practice shares offices with a firm that sells the product. Even if the advice is sound, the client could reasonably wonder.
The safest habit is to disclose in writing whenever you hesitate over whether something counts.
When you have a stake in the product
The same rules go further for one situation. A member must not recommend a product in which they have a material personal interest without disclosing that interest in writing when the recommendation is made.
The timing is the point. A disclosure buried in an onboarding pack signed two years ago does not tell the client, at the moment of decision, that the adviser stands to gain from this particular product. Put it in the recommendation itself.
Replacement advice: three options, each documented
FPI rule 4.5 sets the bar for replacements. A member only recommends buying, selling, cancelling or replacing a product if it is reasonably necessary to the client's agreed financial planning strategy, and only after documenting the costs, benefits and risks of three things:
- acquiring the replacement;
- keeping the existing product;
- cancelling the existing product.
A worked example in words. A client holds an older retirement annuity with a protected minimum-growth feature, and the adviser believes a newer platform offers lower ongoing costs. The file should show the costs of moving (termination charges on the old product, any new initial fees), the benefits of moving (the lower ongoing charges, broader fund choice), and the risks (losing the protected growth, being out of the market during the transfer). It should then show the same three headings for staying put, and for cancelling outright. Only once that comparison exists, and the move fits the strategy agreed with the client, does the recommendation follow.
The comparison protects the client and the adviser alike. If the replacement turns out badly, a documented analysis showing that the risks were set out and accepted is a very different position from a file containing only the new application form.
No advice that only earns the planner money
FPI rule 7.40 says members do not advise a client to take any action that would merely generate remuneration for the member without any benefit to the client. Replacement advice is where this rule bites hardest, because a switch can earn fresh commission even when the client gains nothing.
A useful question to write at the bottom of each replacement analysis: "What does the client gain from this that they would not have if they stayed?" If the honest answer is "very little", the advice should not be given. The full text of these rules is in the FPI Code of Ethics and Professional Responsibility, which is the reference to check before a practice updates its disclosure templates.
Signed disclosures that can be shown unchanged
Written disclosure only helps if the practice can later produce the version the client actually saw and signed. In Achekam, a planning business can send its conflict disclosure or replacement analysis for electronic signature: signature and initials fields are placed on the document, signers can sign in order or all at once, and the envelope can carry an expiry and reminders. When it is done, the signed PDF and a completion certificate are filed back into Documents.
From there, the Document Centre keeps it in the client's folder alongside the replacement comparison and the new application. If the analysis is revised before signing, the new version keeps the earlier ones, so the file shows how the advice developed. Every stored file also gets a SHA-256 fingerprint, which lets the practice show later that the signed disclosure in its file is the same file that was signed; the details are in showing a filed document has not changed.
Achekam does not judge whether a conflict exists or whether a replacement is justified. The adviser and the practice's compliance function make those calls. What the system holds is the evidence of what was disclosed and when.
Fee and commission disclosure, which often travels in the same document, is covered separately in disclosing fees and commission to planning clients.
A review for the practice
Pick the last three replacement recommendations the practice made. For each, check that the file holds a written conflict disclosure dated at the time of the recommendation, a comparison covering the replacement, keeping the existing product and cancelling it, and a note of what the client gained. Where any piece is missing, update the practice's templates so the next replacement cannot be completed without it.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
