A survey of 500 advisers conducted by financial services M&A firm Radar Results found that 76.4 per cent disagreed with the recommendation made by both ASIC and the FPA to the royal commission that grandfathered commissions be removed.
Radar Results principal John Birt said the results “demonstrate the concern financial planners have for a proposed ban on commissions”, adding that some advisers derive as much as 50 per cent of their recurring revenue from these commissions.
“Interestingly, 202 of the responses included a written comment, many not very happy with this proposed ban,” Mr Birt said.
A number of the respondents remarked that removing commissions will offer little to no benefit to clients and will instead contribute to product providers’ bottom line.
“Banning grandfathered commissions does nothing for the public unless the admin fees drop by the equivalent amount. All it does is line the pockets of the product provider. Commissions are not adviser service fees where the client benefits from them being turned off,” one respondent wrote.
“Many clients are in old product that has commissions built in (some for good reason). If they remove their adviser now they do NOT benefit with a reduced admin fee.”
[quote=Anonymous]No, Brian, some of us have just figured out other ways of charging the client for advice that don’t involve commissions or volume based fees. Feel free to open your mind up to new ways of conducting business. [/quote]
Phil Carman, I challenge you to state specifically how you charge for risk-only advice to a struggling family who can ‘just’ justify paying and amount like $2,000 to ensure they are adequately covered. Then I present them for an invoice of $3,000. If they don’t laugh they will politely decline and go direct. End of story. No FP /investments involved to help cover/justify or absorb the fee for the risk component. Better people than you and I have attempted this and failed miserably, as I suggest you will. Such clients, and many other types, will simply NOT pay a fee for pure risk-only advice. HNW clients are the minority and I am not talking about them – they represent less than 10% of clients. Clients will be pushed by this into the arms of the direct insurers and suffer the following:-
– underwriting at point of claim
– sundry issues of small print
– sub-standard definitions
– inflated premiums.
– no claims assistance from advisers at claim time as the advisers have left the industry.
I’m sorry, I will not accept the argument from anyone that fees can be successfully charged for risk-only advice to ordinary family and individual clients of normal/average income bands. I have tried it over a period of 2 years, as have a number of my close colleagues, and given it my very best shot with advice from industry luminaries and followed their instructions to the letter. I wanted it to work! Risk-only advice fees do NOT work. I’ve done the hard yards on this and I am absolutely confident in what I am stating here. Remember – we are talking risk ONLY – that is different to what you were talking in your last comment.I would relish the opportunity to debate this face to face but I know beyond a shadow of doubt it would be a waste of time. it is proven and NOBODY can put hand on heart and say they have done it successfully on a large scale. nI CHALLENGE anyone to PROVE me wrong. You cannot.
[quote=Anonymous]Don’t forget the taxi industry. Those who spent hundreds of thousands buying taxi plates…enter Uber. Things change.[/quote] And you realise the government are compensating plate holders right?
I read recently that the person who writes the cheque is the master. If you are paid by commissions, you are employed by the provider. There is no place for commissions of any sort, or asset based fees for that matter, in a professional relationship with your client. It looks like 74% of advisers will wait to be told to change – what a pity the opportunity to set a new standard, a new professional standard ourselves, is not being welcomed by all advisers. What a pity that we allow politicians and regulators to set out how you will run your business, to set out how advice is to be provided and how we charge, simply because as a group we don’t have the “balls” to do it ourselves, voluntarily. After all that has gone on, we should be taking the bull by the horns and making the changes needed to earn the trust and respect of the regulators, politicians and clients.
Commissions are funded by the client, not the provider. If you lose the client, you lose the revenue. Legislation is in place to ensure you work for the client. Your analogy is flawed to say the least. Might be worthwhile applying critical thought instead of latching on to catchy phrases.
The argument against risk commissions has been destroyed through real world cases where governments have gone down this path only for the underinsurance problem to be exacerbated.
No flaw there, that’s the whole idea behind legal independence… Get paid by the client only, hence working for client only. You get paid by a product provider, simple.
[quote=Mr anonymous]I think your comments can be deemed as trolling… yet another anonymous comment from someone who has never run a business[/quote]
Well Mr Anonymous I run a business, he client will certainly not be worse off if a trail is removed or moved to a non trail product and then serviced effectively.
I assisted a client recently where an adviser had received a mixture of insurance trail and “adviser service fee” pre FOFA and recieved $40,000 over 13 years with get this…….. 1 reactive interaction where the customer rang him. Bugger me dead if i didn’t put the client in a better position. Oh and to make it worse, the lady had no debt, no child dependents but he tried to convince her to keep her life insurance only. And why do you think that was.
He was a slime ball who gives us all a bad name.
Is it only me but I’m so so over the FPA and their bumbling statements. The landscape changed and they had from 2013 to 2018 to press their opinion, to listen, educate, lead, discuss and formulate a position. To have it now flushed out of them from a Royal Commission and announced via IFA is not the conduct of a professional organization.
By putting their own interests before the good of the greater community, these 74% of advisers are only reinforcing that Financial Advice is not a profession. The only reason the industry is so over regulated is due to the industry failing to self regulate. The FoFA reform was a golden opportunity to reset and move forward, instead was watered down due to lobbying of vested interest groups. To be labelled a profession, conflicts can’t be disclosed away, but rather must be avoided. Unfortunately, all this kicking and screaming is just showing that the industry is not ready to be a profession and will only create another layer of compliance requirements.
Yes I know many good people rightly or wrongly built their businesses on trail commission, but all good business must evolve and as Netflix built its business on Mail order DVDs before changing with the times, so too advice business must decide whether they will be a Netflix or a Blockbuster.
Some recent research stated that 20% of bank advice revenue is of trail commission, but 45% of average IFA revenue is trail commission. Why is this? Banks have actively been moving clients from expensive legacy products into more modern alternatives, whilst many IFAs have avoided even contacting these clients in fear of losing their lucrative income source.
There are two types of advisers that support retaining commissions. Those that lazily collect those commissions and provide nothing in return. And those that provide a convenient low cost source of valuable advice to clients who are fully aware of the costs involved but can’t or won’t pay explicit fees.
It is completely wrong to say that a certain payment method is inextricably linked to a certain adviser behaviour. Commissions can be a perfectly valid form of payment as long as there is a surrounding framework of BID and full disclosure. Just as fee for service can put clients in a much worse position if there is no statutory BID requirement (as happens with accountants) or with 100% fee for service advisers who hide behind the deceptive claim that their payment method guarantees “conflict free advice”.
All professional service payment methods are ultimately conflicted. Saying that one method of payment is professional while another is not, shows a misunderstanding of the nature of professionalism.
we need to bring the FASEA exam forward to 1 Jan 2019, and the the degree requirement forward to 1 Jan 2019
there won’t be many advisers left after that
for example, a dealer group like Dover is going to lose 90 -95% of their sales staff as they won’t be able to pass the exam or complete a degree
I totally agree – they should have brought forward the exam and degree requirement to 2019 not another friggin 6 years away. Not sure about the Dover comment though – as far as I can tell the majority of their ARs are actually degree qualified (Source: Adviser Ratings)?
It seems beyond belief and comprehension that the Regulatory Authorities believe turning off grandfathered commissions is the answer to the problems being encountered in the industry. Retrospective legislation has very few supporters and many opponents when it has the capacity to adversely impact on so many. It smacks of desperation and appears to demonstrate a lack of understanding of how to fix the problem it is attempting to fix
The real issue to me is the failure of the regulators and not the issue of these grandfathered commissions.
And this is now even more evident following the recent Royal Commission interviews.
Quite simply, change the personnel in charge of the various regulatory authorities, for it is clear that they are devoid of an understanding of the very industry they seek to regulate.
The introduction of MySuper legislation has already to a large extent cut off trailing commissions to advisers and there is a corresponding impact and loss of income that is being sorely felt in playing by the new legislative rules.
And still the Regulators wish to go further. Then go further and regulate and ascertain how many adviser clients were never switched across into MySuper so advisers could maintain trail incomes. Be constructive, not destructive.
Honest advisers have built up their businesses over the years and that income is in some instances a large proportion of their practice revenue, which they rely on to make an honest living. And those clients are serviced regularly but not necessarily by way of a Fee Disclosure Statement as it may life insurance related, or there is no fee for service arrangement in place where other products are concerned.
It seems to me that the Regulators are intent on using a sledgehammer to knock in a nail and the obvious conclusion is that they simply do not understand their own industry.
To solve the issue is quite simple, no sledgehammer needed. Simply introduce Fee Disclosure Statements for all clients, not just fee for service clients, as well as the opt in provisions.
I understand the need to fix the industry. Then fix it. Do not destroy it. And if the regulators have no idea how to fix it, admit it, resign and hand over to to those who do.
Do you realise that when you post as “anonymous” you have ZERO credibility? Get a spine and say who you are and then be as firm in your views – many of which, by the way, many of us would agree with, but as it is just look like trolls. Professionals are ALWAYS happy to have comments attributed.
As for trailling commissions: in essence they are bad for everyone, BUT if they are not rebated by the product provider to the client if/when turned off by the adviser (or the client!) then that is even worse than the adviser (who can at least be held accountable and asked to provide service) that is an even worse out come for the client. BTW – I’ve telling anyone who’ll listen for more than 3 decades exactly why it’s NOT an advantage being in the FPA. My clients know exactly that I wouldn’t join it and why and are very happy that I’m genuinely independent – including of the FPA and similar organisations that do little for consumers. My ONLY membership is of FOS – and I’d advise all others to do same.
Spot on all points Phil. Any ban on these commissions needs to include the savings returning to the client, not the product provider.
I’ve been doing this at least as long as you have Philip and I’m here today to inform you that you don’t seem to have a single clue when it comes to the absolute importance of commissions. Trailing commissions are an essential and crucial part of those commissions. It is vital to maintain these or else many low income Australians will not have access to advice on any financial matter at all, unless they go to the banks. I’m sure even you wouldn’t want to inflict that upon them. Not telling you anything you haven’t heard, I’m sure – hopefully it will sink in one day soon enough to stop you making these patently incorrect and damaging posts around the place. Your words are to the detriment of clients, no two ways about it so please, think things through properly for a change and stop adding to the miserable clout of those who would damage our industry and client’s best interests.
No, Brian, some of us have just figured out other ways of charging the client for advice that don’t involve commissions or volume based fees. Feel free to open your mind up to new ways of conducting business.
Horse hockey
you’d be insane to be a member of the FPA. they have no credibility. terrible association
Shouldn’t they have fired off an email..just as matter of courtesy first…. as opposed to having fee paying loyal members read about it in trade publications like this one?
Do you realise that when you claim to offer “conflict free advice” and steer clients into high fee for service solutions like SMSFs you have ZERO credibility?
If you want to be taken seriously you need to end trail commissions full stop.
End of story.
Secondly, you need to remove yourself from the FPA and it’s laughable practice.
You can not allow yourself to be a member safter that Sam Henderson debacle let alone its relentless self interest pursuit on education and course flogging.
Are you seriously going to continue being an FPA member today?? Seriously??
If I was a client I would walk out of your practice immediately.
Trail commissions are only the tip of the iceberg. Voume based adviser service fees are perfectly kosher with current financial planning legislation and are just commissions dressed up with a new name.
100% agree with those comments. What also is a joke is the FPA wanting to be involved in the code of ethics/conduct monitoring process. On one hand they get commissions from firms appearing before a royal commission and on the other hand the want commissions banned…go figure. a very mixed message.
By the way, what should we do about mortgage broker trail commissions?
Mortgage brokers receive these and have nothing to offer except a monthly email to tell me that the iterest rates are on hold again.
They can’t even log into the bank system and see how much I owe, what my current interest rate is etc…
Remember reoccurring revenue was the name of the game, passive income lol lol lol
We are now in the Advice business, get real people
Good to see some people speaking sense, Bobby!
The results from a survey of 500 people – which is 2% of all Advisers – is not compelling.
In a previous life we traded a financial plan for the trail commission. Full disclosure to the client that there would be no ongoing service other than what the product provider supplied. Seemed like a fair deal at the time.
And if you don’t provide a single shred of ongoing service and the client has no ability to turn off the ongoing fees? Not a fair deal then. Having worked at multiple companies who offer a raft of legacy products like this – the amount of clients not receiving any service but still having an adviser pocket the fees each year was frustrating to see.
It was a subsidized system…like medicare. I’m paying medicare every year but haven’t used it in over 10 years. Richer clients subsidised the many poor clients that would ring and contact the servicing adviser frequently. The cost of a SoA was thousands and once off advice also costly but it was subsidised by the wealthier clients and the pool of clients.. Rightly or wrongly this system was intended to close in 2013 with relaxation of laws allowing super funds to service lower net worth clients. Some advisers however are now getting a shock as this is news.
Trail commission doesn’t pay for ongoing services, never did – it is an inducement from the product provider to reward advisers who introduce clients who stay in a product. Please either try to better understand the reality of the situation, or stop trying to intentionally middy the waters.
That being said, trails should go – exactly BECAUSE they are an inducement from the product provider to reward advisers who introduce clients who stay in a product and thereby have the potential to influence some, not all or even most, but some, advice to exit these products.
The point here, anonymous, is that taking the EXISTING commission away does not benefit the client. Product providers have not in the past reduced fees $1 for $1 when commission is taken out on a new policy and I have never seen premiums drop when an adviser is not present….therefore no commission paid. And, where a client only has insurance, I have not found one who is happier paying an explicit fee vs paying more and the advice being funded from commission. Maybe you deal in a completely different market. or world.
Advisers are angry that they’ll lose commissions on clients they are likely not servicing. Colour me shocked.
Agreed!
I have many commission clients and they are all getting serviced . Where do you get your information? I am a member of the FPA and I am sick of them assuming things . If they want to know if we are for or against commission let them ask by 1/ number of advisers and 2/ Weighting of advisers that have a sizeable FUM .Ps why did they keep the Henderson maxwell thing Hush hush ??
Oh I am speaking of 30 years experience viewing the behaviour of advisers across multiple businesses who happily sit on books of commissions which they regard as ‘passive income’. If you think this behaviour is isolated, I am very sorry to disappoint you.
I agree with you but if the commission is to be turned off, it needs to be passed on to the client as a reduction in the admin fee and not just kept by the product provider to increase their margin!
Agree with you Kate. The saving should be passed on to the consumer.
ha ha so funny….as if that’s going to happen.
Not sure what product you were writing back in the day, but my recollection is that apart from the GST component, this is exactly what happens… except for risk!
So advisers think the banks are conflicted and ruining the industry. However don’t dare turn off an advisers hidden commissions?! I know it isn’t that simple but the press will make the message that easy. The advice profession will lose credibility with this stance.
You’re first mistake here is assuming that the advice profession actually has credibility in the first place.
Can someone please explain what the benefit is to a “client” in having a built in commission structure over a visible ongoing service fee that can be turned off at the clients discretion. These are hidden fees that most clients are unaware of. Wholesale products provide cheaper transparent fees, that god forbid have to be explained and earned.
Can someone please point out just one product provider that hides the ongoing commission trail paid to advisers anymore? Movement to a wholesale product, triggering 1) buy/sell costs, 2) a SoA to be produced, 3) notifying centrelink of the change, all for a fee saving of $100 to $300 a year is not in anyone’s best interest. It’s really a case by case analysis.
I don’t believe it’s a simple case of just turning off grandfathered commissions. I was able to do this for 80% of my clients, some I ended it some to be honest I’ve just been lazy because it’s just not in their best interest to turn off a commission only to turn on the same fee. However I’m pretty sure some advisers are waking up today realizing they are dinosaurs and are only now understanding that they need to get on board with what the Government is ultimately trying to achieve and right or wrong, that’s every client opting into advice.
Well clients seem to like them. When FOFA & FDS first came in, we had a number of clients that i’d inherited who had some money in an investment wrap and some money in a ‘baby’ super wrap. Total fees on both were the same – adviser fee, admin & investment fees – but one was an explicit set of fees and one was built in. Client gets FDS and queries explicit fee, says he thought that we were being paid by the ‘product provider’, I explained how fees work for both products and that he is paying exactly the same under each option. He didnt care and asked for explicit fee to be turned off. Advised that we would need to reduce our level of service in line with reduced income being received, which he was fine with. He was happy to get a higher level of advice & service while he thought he wasnt paying for it. How many clients will be like this to their detriment?
I thought that all administration fees were fully disclosed on their annual statement? Just a reminder for how the old commission products work, the commission gets paid via the product administration fee. These were the stock standard products offered at that time – long before fee for service, FoFA, ongoing service concepts were developed.
Perhaps less time focussing on changing rules retrospectively and more time on how planners can actively move clients to these new products… here is a novel idea, perhaps make the compliance, red tape, paperwork a little easier (and lower cost) to speed up the process?! At moment, it is time confusing and expensive which is probably the hidden reason why the process is not happening as fast as you want it to occur. People with your left wing views simply do not actually understand this (and what is frustrating).
At any point in time, people can rollover their super to a new fee for service (or no service product such as industry fund).. do you realise how many people do not return your call when you try to be proactive and review their policies… Rather than trying to do the thinking for everyone, how about people take ownership in their super and financial matters. We do live in a free country called Australia just in case you didn’t realise.
Great comment! I certainly would’ve moved many clients to cheaper product if it could be done on the equivalent of a Customer Advice Record & Replacement Policy Advice Record. $ page document that can be completed on the spot. Costs very little to assist the client. However I’m hardly going to do a full financial plan at current average costs for a 300 per year annual saving.
So you won’t do the right thing by your client because it takes time to draft a Statement of Advice. Congratulations – you’re the reason the Royal Commission is currently taking place.
Don’t worry about the downvotes, fellow anonymous. Angry advisers don’t like any questioning of why their fees for nothing should be justified – let alone earned.
No, they just have more experience than you. They know that the client will be WORSE off. The client won’t see reduced fees.
Keep telling yourself that. Hope it helps you sleep at night.
I think your comments can be deemed as trolling… yet another anonymous comment from someone who has never run a business
How many real world cases do you need to see before you come back to reality?
Absolutely spot on. The on-going no service trail commissions on risk have been one of the biggest rorts and client rips offs. And the way advisers have tried to justify them is one of the biggest jokes.
If this industry is to really gain some much needed credibility ALL grandfathered commissions should be turned off. The product providers can then turn off the commission and pay out to the client by a reduced premium.
what about the advisers that have worked hard to build up their book? Or bought it ? who has the right to take it off them—pure theft!
It is their fault for being stuck in the past or paying a massive multiple to purchase a book on the assumption they don’t need to service clients. Absolutely no sympathy. Client first, profit second. Can you imagine people outside the industry reading these comments about how often advisers don’t do the right thing by their clients because they paid too much for the book? seriously…
And buying books of business to sit on the passive income isn’t theft? LOL!
What about those store owners that purchased a VHS video store? This is what happens when you operate below minimum standards, whether it’s fees or education. Pure stupidity!
Don’t forget the taxi industry. Those who spent hundreds of thousands buying taxi plates…enter Uber. Things change.
Risk commissions are not at issue here as they are not conflicting and will remain. Commissions for risk business are not grandfathered.
Actually risk advisers who help with claims and annual reviews for no fee earn significantly less for their troubles compared to fee for service planners and generally do a better more specialist job. Ask any risk client if they would prefer to save $5 on their monthly premium or pay a fee of $300 for a review or $2000 to help with a claim and its obvious why trail risk commissions work for the customer.
Yep… spot on
Have you even managed 1 insurance claim? Risk advisers generally don’t charge for this. A claimant’s alternative is to deal with the Insurer directly (at their mercy), or pay thousands in fees to a ‘no-win, no-pay’ solicitor, simply for advocating for what is written in the policy contract. This is usually a high-stress situation that Risk advisers resolve at no extra charge.
Ask yourself – if things are as bad as they say, why is it that:
– Retail premiums are better value than Direct, and often comparable to Group insurance held in Super.
– Satisfaction and claim paid rates are significantly higher in Retail, than Group or Direct.
Now I wonder why ASIC never considered these factors……?????
And how many clients actually claim? The vast minority. How many of those would have paid the ongoing commissions for many years with no ongoing service. The vast majority. Keep on playing that violin though.
As i thought, you are a small time practitioner. Many, many clients claim. Approximately 2% of our book files a claim every year, with many of those claims being long term IP requiring monthly administration.
I have had 3 people in my immediate social circle have to claim, across income protection and life insurance. In each case, health events they had no control over. Financial disaster was around the corner if the policy wasn’t there.
This does not even include my clients for whom I’ve managed claims. One breadwinner had 2 IP claims in 3 years for totally unrelated health issues which both required time off work.
Or the widow with 3 teenage daughters whose husband was run off the road while cycling, 2 weeks before Xmas. In this case the Insurer was playing hardball, but after we escalated the matter (all the way to our Licensee’s CEO) – hey presto! – claim paid.
Play the violin did you say? Go explain that to each one of these families.
$9 Billion in claims paid last year, typically more than 70,000 families per year.
S**t happens. Your reality is not everyone else’s reality.
Can only assume you have never handled a substantial amount of claims for your clients. Each and every time we handle a claim for a client, we make a significant loss on them over the life of the policy. The way we cover that loss if through the trail of other clients. Had these clients not had our claims management service, they would be worse off – no question.