Corin Jacka, managing director and founder of Corin Jacka Financial Solutions, said the FSI’s recommendations “did not go far enough to protect Australian investors” from conflicts created by asset-based fee structures.
“I still believe that as soon as an adviser – licensed through an institution – accepts commission of any sort or charges ‘asset-based fees’, an immediate conflict of interest is created,” he said.
Speaking to ifa, Mr Jacka said asset or percentage based fees were just “a trail by another name.”
He suggested these pricing models incentivise advisers to steer clients towards managed funds or products and away from other strategies like paying down a mortgage.
“The more that goes into that pot that the percentage is based on, the more income you’re going to get,” he said.
He also questioned why advisers should get paid more for managing larger portfolios when little additional effort is involved.
“If I’m servicing a client that has $500,000 to invest and a client that has $1 million to invest, the work on me is not different,” he said.
“The strategies might err slightly but the amount of time and effort you put into it are not different.”
Mr Jacka said the FSI report should have supported banning percentage-based fees but nonetheless, the government would have been unlikely to support such action.
“It is just not in their interest,” he said
On the flipside, he praised the FSI for recommending a reduction in superannuation fees and a ban on upfront commissions on insurance products.
“Many fees and upfront commissions are currently too expensive and ordinary Australians are regularly unfairly penalised,” he said.
Well said Craig Yates
[quote name=”Red Stone”]Put this to Mr Jacka…
Does he accept trail commissions for insurance products he sells?
Does he accept upfronts and trails on mortgages he sells?
Or is his practice a 100% fee for service based business?[/quote]
No I dont accept anything.
I have seen many examples where a client might have something like $200,000 invested, is being charged 1% fee so is paying $2,000. They then get additional funds, say inheritance or a defined benefit fund rollover and an extra $300,000, $500,000 or $700,000 gets added to the current pot of funds. The fee goes from $2,000 to $5,000, $7,000 or $9,000 per year and in many cases the service or overall strategy hasnt change.
Only my opinion but something does not seem right about that.
I think the model has some flaws to it but if adviser and clients and happy with, great.
Following the GFC our clients go an immediate fee reduction as we charge assets based fees monthly in arrears with no contracts, up fronts or minimums. They can walk anytime they like. We have been in operation and growing since 1987.
Clients see our fees going up as a plus as that means the value of their assets is proportionately going the same way.
Most clients have been with us for decades and recommend us to family friends etc.
I am guessing that means that there are a bunch of people who want to be charged on a percentage asset value basis or they would not be still paying us and recommending us.
If so, why should the government, or anyone else, be telling them what they can pay or not pay?
We should all be working together for a change for sure:
#PerceptionCorrection
#putyourmoneywhereyourmouthis
#makechangehappen
https://www.kickstarter.com/pr…
To Gareth Hall:
I respect Mr Jacka’s right to practice as he sees fit and I respect his right to have an opinion.
I simply don’t respect his opinion.
You are right in that it should always be the choice of the adviser and the client to determine which fee structure best suits the client.
I think what is really getting up people’s noses is that there is a groundswell of fervent, evangelistic preaching coming from certain circles of the so called “true independents” that are taking the opportunity to slam the vast majority of advisers simply because they may not be operating their business according to their doctrine.
The client is the most important factor and the client should be free to choose a fee model that suits them and their ability to pay for advice and represents value for the advice provided…end of story.
I think people forget that it is not our opinion that matters here. Clients will decide what they think works best. Successful advice practices of the future will be the ones with a remuneration model that clients like. So I guess time will tell. One thing is for certain, this is a time of great change in our industry, so look out for those that stand still.
How can financial planners ever get an acceptable outcome from legislation when advisers don’t have respect for other advisers business models. It is terrible to see people pushing their own opinions at the cost of others, this is not in the best interest of the client.
Who cares how a client pays a fee, if the fee is agreed between the client and the adviser?
Why does this stuff get regurgitated time and time again on such a false premise. The argument is wrong, the assumptions made are wrong, the generalisations made are wrong. The quality of the argument and statements in the article is so poor. Friday page filler.
I also run a small, one-man “shop’ but in Perth. Mr Jacka is making an error in that he assumes a percentage fee is paid by a third party to a second party for investments of the first party… THAT should be banned as it’s just a commission. However when an adviser and client have agreed a fee charged BY THE ADVISER and invoiced by the adviser to the client there is no lack of transparency; no lack of redress or ability to cease the payment and certainly no need to interfere with the contract between client and adviser. What’s wrong with this whole issue is that advisers are letting product providers act as their agents in making collections/payments and that needs to cease. Advisers must learn to stand on their own feet or they will always look like puppets.
Why on earth assume that a higher balance equals a higher fee anyway? Some clients may be charged 1%. Some 0.8% or lower. You can adjust an asset based fee as you can a fixed fee. As long as full disclosure is there (which is unavoidable anyway), this commentary is ridiculous.
Put this to Mr Jacka…
Does he accept trail commissions for insurance products he sells?
Does he accept upfronts and trails on mortgages he sells?
Or is his practice a 100% fee for service based business?
[quote name=”Scott”]As an industry we need to stop this infighting and what is effectively petty name calling.
With all due respect to Mr Jacka he runs a small one man shop in suburban Melbourne. He is entitled to his opinions and to run his practice as he sees fit. However it is not acceptable to condemn the rest of the industry and shame on IFA for perpetuating this kind of junk.[/quote]
Then why admonish the FSI and discuss on the record an area of the industry he is clearly not familiar with!!
As an industry we need to stop this infighting and what is effectively petty name calling.
With all due respect to Mr Jacka he runs a small one man shop in suburban Melbourne. He is entitled to his opinions and to run his practice as he sees fit. However it is not acceptable to condemn the rest of the industry and shame on IFA for perpetuating this kind of junk.
The last time I checked, we lived in a country which encourages competition and value to drive pricing and pricing methods.
Mr Jacka’s zealous crusade and those who believe fixed fee is the only ethical method of fee models are just plain wrong.
How about the Government charges a flat based tax fee for all?
Value, risk, complexity, strategy should be the determinant of the fee relationship with a client. Fixed or asset based.
This debate regarding asset based fees is absolutely misguided. Mr Jacka’s zealous views on how advisers should charge their clients depending on the time involved comes directly out of the old Accounting mentality. Fees are based not just on time but value, risk, complexity, time and outcome. Advisers disclose their fee schedule and clients ultimately decide to accept that fee method or not.
I find it amusing that in this debate I never here exponents such as Mr Jacka addressing the asset based fees of Superannuation funds, Managed investments, state stamp duty or stock broker fees.
The last time I checked we lived in a democracy in Australia, based on a capitalist market system which allows competition to determine acceptable fees. Exponents of this fight against asset based fees would obviously like to live in some other system.
Corin Jacka who? Move on… let’s get on with business, fee model is irrelevant if value is there. There has been much media recently praising asset based fees as really the most relevant ‘investment advice’ model. If you are telling a client to reduce their mortgage then clearly you are not giving ‘investment advice’. Let’s be clear on the services we offer and the skill sets each of us may have.
Client portfolio size may not technically need much more work from a time and effort perspective but it is justifiable from a business management perspective to charge higher balances more simply because you are attaching large liability to your business. A $1Million portfolio effectively attaches double the liability risk of a $500K portfolio. Let’s not lose sight of the fact that advisers are running businesses. The nature of that is that you charge money, make profit and manage your risk.
What absolute rubbish. Advisers should be free to set their fees in the way they wish. Hourly rates, fixed fees, percentage based, capped or tiered fees. It doesn’t matter. That decision is between the adviser and the clients. Not for someone in their ivory tower to be dictating to all. By the way, considering the risks we are now exposed to with FOFA and the unprecedendeted ability of clients to make claims against us, I think asset based fees are probably more relevant now than at any time before.
Maybe Corin should move to the PRC. A professional adviser acting in a clients best interests would recommend mortgage reduction if it were appropriate to clients personal goals and circumstances, I certainly would. An asset based fee % can be higher for small balances and lower for larger balances to reflect work effort involved. What is important is that it is fully disclosed and the client knows what they are paying. Surely if not understood from SOA, when client receives FDS and Opt-In invitation they will review and negotiate. I also dispute that $500K is same effort as $1M. If you do not devote more time to larger accounts you are not acting in your clients best interest.
I must admit i agree with the comments here as we charge flat fees BUT i think that this principle should also apply to fund managers and super funds. Why does someone with large balance have to pay so much more ? Lets be honest and look at the real cost to administer and manage a super portfolio. Perhaps our friends at the industry funds could also shed some light as they claim to be 100% transparent
As I read this it was difficult not to laugh.
Investing larger sums is exponentially more complex with Asset Based fees appropriately aligning complexity, Adviser Skill and Client expectation. All of my clients view Asset Based as quasi performance fee ensuring long term objectives are met and that we have some “skin in the game”.
If Mr Jacka believes the difference between a $500,000 and $5m portfolio is simply the number of units, then I’d suggest he avoid the HNW sector completely!
This is a poorly thought through comment. Asset based fees for truly independent advisors are simply an efficient collection mechanism that still as always has to pass the test of ‘value’. As for larger investments they generally have tiered fee structures to reflect the economies of scale and again are based on the service package a client requires. It is foolish and naive to suggest an advisor would not recommend to pay down a loan simply to advantage themselves. That would be against the client’s best interest!
The focus should be on independence of advice and disclosure and not fee collection techniques which in any event are always approved by the client
Please don’t start this rubbish again. You are alleging that advisers on percentage remuneration will do the wrong thing, but you forget that a lot of these advisers also charge fixed fees for advice and strategy. That same old tired argument that advisers need to sell a product to get paid….it’s long gone.