Outlawing commission payments and asset-based fees is the key to resolving all of the advice industry’s trust issues, argues consumer advocate Robert MC Brown.
During a panel discussion at ASIC’s Annual Forum in Sydney yesterday, Mr Brown – a chartered accountant and chairman of the Australian Defence Force Financial Services Consumer Centre – responded to FSC chief executive Sally Loane’s comment that there is no “technical silver bullet” for consumer and media concerns about the financial advice industry.
Mr Brown said there is a “silver bullet” and that it lies in removing incentives such as product commissions, including asset-based fees.
Many within the advice industry “obfuscate” and refuse to admit that removing conflicted remuneration from advice is what the industry needs in order to move forward.
“Once that is fixed, a lot of these things will fall into place and all these discussion we have been having today [on remuneration] and the threat the industry feels it is under will just go away,” Mr Brown said.
“So in fact there is a silver bullet. It’s just we don’t want to accept it generally speaking,” he said.
Mr Brown added that asset-based fees are a “highly conflicted” form of remuneration and advisers should not be using it.
“An asset based fee is a commission by another name. FOFA has banned certain types of commissions paid by third parties, but as an adviser, you can drive a truck through FOFA by using asset-based fees, which the industry calls a ‘fee for service’ in many cases, but it isn't,” Mr Brown said.
Addressing the same panel discussion, ClearView managing director Simon Swanson concurred with Mr Brown on the issue of asset-based fees but expressed concerns about whether average Australians will pay upfront for advice.
“I concur with Robert's comments, strangely enough, on that it is a commission by any other form so let’s just agree with that,” Mr Swanson said.
“But the average punter… I don’t actually think they have got the money to pay for the advice upfront.”
Former TAL chief executive Jim Minto added that we need to be careful that the regulatory system does not drive lower income people into general advice relationships only.
“[A majority of Australians] are the victims who we are now going to remove access to advice from and substitute with more simpler sales-type models because the paradox in life here is that advice is the thing that people most value and they are less likely to get it out of these outcomes anywhere else,” Mr Minto said.
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