The Australian Securities and Investments Commission (ASIC) has backed a proposed overhaul of financial planner remuneration, suggesting commission payments promote conflicts of interest.

In a submission to a parliamentary joint committee inquiry into financial products and services, the regulator says commission-based pay structures "can distort the quality of advice" received by clients.

ASIC has proposed the introduction of legislation recognising a fiduciary obligation between a financial planner and client, in response to claims the industry suffers from low qualification thresholds and limited licensing and pay controls.

The Financial Planning Association (FPA) has welcomed the proposal, with CEO Jo-Anne Bloch saying her organisation "has already embarked on a series of initiatives addressing these points".

An FPA paper released in May on the issue attracted 250 submissions from planners, with 68% supporting a recommendation that members move away from commission-based advice by 2012.

The FPA proposes a choice between hourly fees and asset-based fees, warning the use of time-based fees in isolation could discourage clients and harm the industry.