Speaking to ifa, Lifespan chief executive Eugene Ardino said calls from regulators and industry associations to ban grandfathered trailing commissions did not factor in all of the consequences that clients and advisers would face.
Mr Ardino acknowledged that these commissions can be seen to be a conflict of interest, but that banning them would result in greater problems.
“If you’ve got a client that’s in a product that pays you as an adviser a trailing commission, there is a possible conflict for you to leave that client in that product,” he said.
“But, tell the adviser that you’re taking that commission away and you’re creating a much bigger conflict of interest for that adviser to move that client out of a product, and when you move a client out of any product there are all sorts of things you have to consider – there are exit fees, capital gains tax, centrelink implications.”
Mr Ardino said the difficulties this new conflict would create would be worse for clients than leaving them in commission-paying products.
“I would argue that, yes, there is a potential conflict that currently exists with grandfathering, however if you kill grandfathering, I believe you create a new, much bigger and worse conflict with much bigger and worse negative ramifications,” he said.
Additionally, advisers who receive commissions and provide ongoing service to their clients would be forced to change their fee agreements with existing clients, most likely driving up the cost of service.
“It’s an interesting debate although I see it as a bit more of a no-brainer and therefore cannot understand why a lot of groups are calling for trailing commissions to be switched off,” Mr Ardino said.
Mr Ardino has subsequently provided further clarification of his comments to ifa.
“The trail doesn’t actually get switched off, it gets redirected to the fund manager, therefore there’s no upside for the client in all this. The conflict is a subtle yet complicated issue and the implications could be severe if not managed appropriately,” Mr Ardino said.
The only way we will be considered a “profession” is to provide advice only. Do not provide product recommendations or take fees from product. Provide the recommendation and perhaps a list of suitable products for the client to choose from and let them implement the advice provided. Just think…No FDS, No Opt-in, no time wasted with Centrelink or product issuers. Importantly – no SOA, or a very small one which lists out the steps to take. Pure fee for the job. If the client wants a review, charge a review fee at the time.
“…but they won’t implement our advice if we don’t do it for them…” i hear you say. WHO CARES? Not your problem, you’ve given them the advice NEXT PLEASE. Let the client take some ownership and do some work.
“…but we’ll go broke if we don’t charge ongoing service fees” i hear you say. No you won’t. You’ll have way more time to speak to people and get paid for it. You’ll see more people…your qualifications will be appealing. Clients will come back for reviews if you send a reminder. We need to get rid of these service packages like gold, silver etc. Consultants got paid well for dreaming up this crap and now it’s all going to come crashing back down on us.
So clients don’t need assistance with implementation, the ongoing servicing of their accounts, dealing with Centrelink etc ?? Sounds like you are falling for the ASIC claptrap ie Clients should not pay for service just advice. And you need to separate yourself from product and service to be a professional ??
Correct and correct. Let your client deal with Centrelink. They have customer service officers. Why waste our time? Same with super funds. Call centres on standby. I’m afraid that’s the way it may be headed. Big shakeup coming. Don’t think your licencees will support you either. They only care about FUM. Your revenue is nothing to them.
Gerry, Spoken like someone who works as an Accountant where it’s compulsory for a tax return to be done… or a Super fund with a hundreds & thousand members me thinks? sounds fantastic where people are just lining up for your advice? I tried that and it don’t work. There is simply not enough people willing to pay, or the audience, unless you’re an accountant and getting a tax return done which is compulsory. When a new client walks in the door it’s like a thank god, finally moment and I consider myself pretty successful. The people who want, seek out advice only, are the ones that can’t afford it. People pay for implementation and to be held accountable. To quote another “Knowing is not enough, we must apply, wishing is not enough we must do.” and that’s the greatest value we add…that’s advice, service and motivation.
‘Let your client deal with Centrelink’? Oh my god! I could write a book about all the problems I have encountered with that hopeless organisation. Last year I had two wonderful women, who had recently retired after a lifetime of hard work, call me in tears over the disgraceful and incompetent treatment from so-call ‘customer service officers’. I also fixed an error made by Centrelink staff, which resulted in a $40K loss in pension payments for lovely old man, who had been continually fobbed off by Centrelink staff. He knew something was wrong but had given up trying to get to the bottom of it with Centrelink directly. As for super fund call centres, don’t get me started…
I know full well the dramas with Centrelink and super fund admin. We are advisers yes? We should focus on providing the right advice and spend less time fixing up other department’s blunders. You can’t charge enough to recoup the time spent on fighting with Centrelink. Let the client take it to the ombudsmen – it’s free. Sound harsh? Yes, but that’s the way it’s headed.
Gerry, your proposed way is the way of the future. I am already working towards that.
this isn’t going to work if you are part of dealer group. they don’t care about you or what is best for the client and the profession, they only care about what they can clip.
therefore, I am also applying for my own AFSL
If you are not prepared to use you name why comment.
Because . . . Damien . . . . in order to say what we really think it is imperative to use and alias. Some of the comments here could make life very uncomfortable for some commenters if the relevant life companies, investment companies or dealer groups took us to task on the comments. Unfortunately some of those entities do not enter into the spirit of being honest about what one may think. Posting anonymously allows the filters to come off without fear of retribution – and retribution on a biblical scale it could indeed be with the protective attitudes some entities have to their home turf. Just far too risky to be honest under a name that can easily be traced back to the commenter. Me? . . . I can’t wait to retire, sever links with the companies and dealership paying me each month so I can comment without fear under my own name.
Ive been reported for my comments online when using my real name… Spoke some harsh truths many didnt like and some interesting phone calls followed… Hence I wont use my name anymore.
exactly, this is an anonymous forum where people can speak freely without prejudice. if you want to put your name to your comments fine
but don’t expect that from everybody, people will only speak their mind when there is no fear of recriminations
Grandfathered trail will go and this is a certainty. Hopefully this is done over a long enough time period for those affected planners to adjust. Everything else (e.g. risk commissions, ongoing advice fees etc) is uncertain but expect large changes. Adviser ratings research has indicated that as many as 50% of FP’s will leave the industry and I think that this will be the minimum. FASEA and the ageing adviser population will have a large impact on this figure. Regardless of the debate around conflicts, commissions, professionalism and the like, public perception and trust is probably going to have an equally large impact. My concern is that FP’s are now simply not trusted and the RC along with the media coverage has made this worse. There are no positive stories in the media, aligned professionals (e.g. accountants) have all distanced themselves and FP’s are attacking each other based on who has higher ethics. The reality is that this whole situation will get worse before it starts a long & slow climb upwards. My concerns is that many of the remaining 50% of FP’s simply will not make it through because business will either dry up or simply become too hard. This is is the real travesty for the many hundreds/thousands of FP’s that did as best as they could, studied hard, sacrificed a lot to set up a business or focus on this as a career. Australians will simply be left with a highly regulated, high cost, overly complicated FP industry with very few FP’s to provide this service. Other professionals such as accountants or lawyers may move in to fill the void as they can subsidies their overheads through other means and the rest of us will be trying to make ends meet doing something else.
Yep. The winners from all this will be union funds (aligned with Labor), junk insurance (aligned with Liberals) and real estate agents (also aligned with Liberals). The big losers will be Australian consumers.
If only there was someone like ABC, Fairfax, Choice, ASIC or CALC promoting the consumer’s interest. Unfortunately this lot see it as their mission to obliterate professional financial advice regardless of the consequences.
Have never had more inbound leads in my working life, struggling to keep up. The royal commission has been great, really cutting the dead wood. Clients will pay for unconflicted, legally independent advice. There is light at the end of the tunnel if you all just give it a try and let go of the grandfathered, non-servicing tripe and just invoice clients directly.
I’d love to know about this “unconflicted” advice you are providing. Tell us more as I’ve never, ever come across a business model that was not conflicted in some way. The greatest conflict is the unrecognised, undeclared and unmanaged conflict.
Will you invoice clients directly that don’t have the cash to pay for it? Can you service clients that have low income and with very little assets? All the independent advisers that I know of (those that meet the Corporations Act definition) tend to only service SMSF, high net wealth clients.
If you actually add value, they will find a way to pay. Alternatively one-off ADHOC advice may be more suitable until they can if they dont have much to advise on strategically. Dont believe in tacking on an adviser fee if its not going to actually benefit them unlike many others, clearly.
Bank Tellers used to smoke whilst counting the cash and have a gun in the branch. We used to drive home drunk and think nothing of it either. Now all of the above is considered evil. I’m the first to claim I’m a gun toking smoking drunk dude but in 2013 I recognized the signs and have ended my relationship with at least 60 clients that paid me trailing commissions on investment products. Trailing commission represents less than 10% of my business.
So you still receive a trail commission yet feel entitled to be pious?
You must not have read my comments closely. I said I was the first to claim I was a drunk driving smoking gun toking individual. I am not perfect. However, I made changes to my business and those small amount of clients whom I receive commission on investments are all actively serviced and all receive FDS. They receive annual RoA’s disclosing commission and twice yearly statements from fund managers disclosing commissions. However, I would be quite happy for commissions to end (we knew this was the case since 2012 and have had 5 years to prepare) as it would impose no business interruption, sacking of staff or risk at all. I am sympathetic to other advisers but obviously by the passion shown here many advisors have hundreds of clients and I do not support that at all.
Well said.
So, again, you receive a trail commission from these clients yet feel entitled to be pious? You feel entitled to arbitrarily draw the line at a certain number of clients? You either do it or you don’t, you cant be half pregnant. Step down from the soap box until your own house is in order.
Anne, I would have liked to have known you “in the day”. Your honesty is refreshing!
i like me a gun toting smoking drunk lady dude “anne davies”
FFS……………….sort of sums it all up really 🙂
Any client right now can call any mainstream product provider and simply tell them to turn the fees off. Just pick the phone up and turn the fees off so Opt In etc etc is an exercise in absolute Nanny State behaviour. Clients already have the choice to in effect sack their advisers any day of the week right now.
If the RC and ASIC genuinely want to make sure clients can receive advice and pay an adviser for that advice then they need to insist that Industry Super Funds allow for adviser service fees to be paid to any adviser of any licensee. ISF got pretty much a free ride through the RC.
Clients in my experience are happy to give their advisers a fee. Whether that’s called an adviser service fee, a commission is not overly relevant to them. They are happy to pay and yes I see there can be a conflict as advisers will naturally use products that can pay them. See above if ISF aren’t made to allow adviser fees to any adviser in the country then a biased market of sorts will still remain.
Sauce for the goose and all that.
Are you confusing commissions with adviser fees?
[quote=Stove ]Lifespan are a D grade dealer group, end of story.[/quote]
Having reviewed several dealer groups, would have to respectively disagree. Lifespan is actually a very good dealership for those wishing to be associated with a privately owned and operated Lic. Yes I am basis as I am now with them.
Clients are the ultimate judge and jury. This whole debate implies that the average client is of very little intelligence, does not read their annual statements showing fees etc, does not look at who the listed adviser is, as shown on their statements and does not question it if they have no idea who they are or why they are still being shown on the statement if they no longer deal with that adviser or practice! The client can call up their super fund/investment provider and request that adviser be removed, but the provider retains the commission and the client is no better off financially. Clients are furnished with more information and disclosure than they ever have been in the past and whilst I support and operate on a FFS basis, its clear that some commenting on here are more interested in lining their pockets first by charging higher fees for questionable service. There are many instances of clients paying fees for service and advice, where very little has been provided.
I have probably missed something. I think the solution may be simple. Currently the FDS/ Opt-In excludes commissions. Include commissions on the annual FDS/ bi-annual Opt-In and let the client decide to continue the arrangement or move on. That way all advisers are on an even playing field.
Thats a very simple, but effective idea actually. Those servicing, whether commission or fee, will keep their clients.
I think I can get what he’s getting at but that’s easily solved. Include commission’s in the opt in: client does not opt in, product debate commission to the client. Simple.
The best idea yet William. Give people the choice! This will also give advisers the opportunity to explain their value to the client.
Like many on this forum I would put my name to my comment but my dealer group would probably disagree with my view.
I really don’t understand why our industry keeps trying to mount arguments for keeping grandfathered commissions. The arguments put forward in this article are laughable, pathetic in fact.
Does it really matter that these arrangements for new business were ‘legal’ prior to FOFA? Do participants in the industry want to be recognised as professionals? Do we as a group ever stop and think why the general public think we are unethical?
I am genuinely astounded at the desperation of some to keep in place something that I firmly believe is holding us back. All fees to all clients should be transparent. Grandfathered commissions must go and arrangements where 1% p.a. is charged on funds under management is almost as ridiculous.
Professionals charge a fee for agreed work, not $7,000 p.a. because the client has a $700,000 portfolio.
It’s time to move forward.
We certainly won’t be recognised as professionals whilst we insist on asset based fees… too close to mortgage broking / real estate. Additionally if an adviser wants to be referred to as a professional then they should not be able to wear the mortgage broker hat one day and receive commission and then the next day say ‘look at me, fee for advice… I’m professional’ blah blah blah.
Well said. I like those real classy Financial Planners that drive around in cars decked out in home loan rates stating they also are financial planners. That’s professionalism.
I’m astounded by how astounded you are… the arguments around professionalism are laughable. We’ll never be seen as a profession whilst there is a nexus with a licensee of any type. No-one goes to the bank to see an accountant or down to CSL for advice on their blood pressure…
we aren’t a profession and with the carry on and protest for the proposed reforms we won’t ever become one.
this is our last chance!
let’s embrace the the licensing exam and also the education requirement once and for all and move forward.
Australians are in desperate need for advice.
do your Grad Dip (it’s not that hard) and exam and let’s move to a ffs for God’s sake
As Ben points out below most advisers have more of less transitioned their business however our concerns shouldn’t be for losing servicing commissions. We should be more concerned about fees for service generally.
People that charge clients for ongoing services (fee or commission) better review their pricing as ASIC and the Royal Commission are positioning to remove servicing as a reason for charging a fee UNLESS it is provided with advice.
ASIC currently takes the view that fees derived by an adviser should ONLY be for advice, not service. This means that unless you are providing comprehensive advice to a client every year, your annual fee will be in breach of proposed regulations.
I know of several licensees negotiating with ASIC on this point for a 2 year advice window – just offering a review won’t cut it. Neither will the argument that we can’t provide advice without maintaining an office with staff, files, accreditation etc in order to provide that advice.
This is an extreme view however it is the view of the regulator and the RC, I encourage you to talk to your licensee about this and forget trailing commissions as this is a bigger issue.
ASIC does not agree that advisers should be paid for service ? Says it all. The future of our economy and jobs growth in this internet age is in the service industries and capturing an adequate price for this service. ASIC you have no idea.
What is your source for this? It makes no sense whatsoever and has never been raised publicly to my knowledge?
Both ASIC and Choice suggested that this should be the case for all ongoing fees in their submissions to the Royal Commission.
Did you actually watch the RC hearings or just read about it?! This is exactly the point they were driving at.
They were driving at fees for no service. Not “fees can only be for advice rather than service”. The vast majority of what accountants and doctors provide is service rather than advice. Why is service suddenly something that planners can’t charge for?
… and the only ‘service’ that counsel assisting referred to was whether or not [u]advice[/u] had been provided! As a start you can go and reread the May 24th transcripts if you don’t believe me.
Why don’t we as an industry (and preferably at a legislative/regulator level) do the adult and intelligent thing and actually give clients the choice of how, from where and when they wish to pay fees. If a client wishes to pay from product by either flat-dollar or commission/brokerage it’s their choice. If they choose to pay an ongoing fee for services or a retainer it’s their choice. If they don’t wish to have ongoing services, then they don’t get ongoing services at all and they can pay adhoc/one-off fees to do things at a later date when they wish/need. I’m an Adviser of 20+ years but I’m also an investor and consumer and I don’t even like the fact that a regulator or government can tell me how to pay/spend my own money on advice, products or services. Give me the bloody choice and freedom, and my clients!
[quote=Reality]Nah, there is no argument. They seem to think its impossible to charge a client a fee instead of a commission… Its laughable stuff, clutching at straws. Unfortunately seeing so many dealergroups and advisers fight to keep grandfathering shows how broken the industry is.[/quote]
AGREED!!!!
[quote=Anonymous]It has been law for several years now that all commissions are disclosed on each and every annual statement from product providers, and in some cases bi-annually. The argument of them being hidden is ridiculous.[/quote]
Then let me ring your clients and get them to explain the trail to me and what they get for it? compared to charging a fee for service, all open and transparent.
No problem, any client of mine in an older product with commission gets service just like a client on an adviser service fee. Maybe ask them if their understanding was their adviser works for free whilst you at it. How is a ‘commission’ an less transparent than an adviser service fee? Both are clearly outlined in regular statements.
That ‘s fine, but when you explain to them that the fee alternative is hundreds if not thousands a year for an ROA that they don’t need.
Remembering that all they wanted is service from time to time to help administer their account, understand a statement, change some details etc – if they wanted more than that they would be paying for ongoing advice as part of a fee agreement.
Clients then might ask why they can’t remain in the current relationship with a commission… “I was getting what I wanted and you took it away from me!”
Assuming that every client is a sucker and doesn’t know that the commission is there and provides them with a basic level of service is pretty patronising, as is assuming that a client needs advice every year.
Clients provided they have the trailing commission explained to them by their product provider and adviser (this could be done better, perhaps through regulation) and then they should be able to justify it for themselves.
Lol some planners are receiving several thousands of $$$ of commission per year per account… You honestly try to justify that by helping them understand a statement and changing details on their account? Wow.
I’m with you PM, his argument does not even make sense! If you ban the commission, why would the adviser then want to move the client out of the product?? Oh hang on, maybe the product is crap, and the adviser would then actually look for the best product for a client, no conflict there at all!!
Commissions are already defunct since FOFA and grandfathering simply protects what was legitimate in the past. Disclosure is there for consumers and they have choice in many instances. This is a fair and reasonable compromise. The question is, why continue to flog this dead horse whilst commissions still run rampant in other industries?
Why isn’t fee for service enforced for mortgage brokers selling home loans, for personal insurance writers, car sales, health insurance, telco reps, real estate agents, property developers, energy providers, stock brokers, the list goes on.
I agree with you on mortgage brokers, but the rest are sales roles!
Is you job to advise your client or what best for them, or to sell them a product?
[quote=Anonymous]Commissions are every where in life.
Have you tried to get service from an Optus shop after you have purchased your phone!!! Where is the disclosure that they are receiving a commission based on the amount of phone calls you make!!!!!!!
[/quote]
Its there or it would come under the secret commissions act and very heavy penalties….phones are disposed of every couple of years and completely different to a retirement savings product were an investment in the wrong risk profile can be devastating…think about it.
It’s not as straight forward as just dropping the commissions and move on as an industry. I am a partner in a practice whereby 95% of revenue is from FFS, but we do have legacy products for which we receive a small trailing commission, such as lifetime annuities, grandfathered account based pensions etc. Typically these clients are Age Pension age or older and a lot of these clients have limited financial means to pay a fee for service. These clients still have access to their adviser when they need it, but if you look at the small trail we receive (generally 0.35%pa or lower), we run at a loss on a time basis. We cannot simply “flick” these clients as many have dealt with us for years, referring other clients and to cease a the relationship would be a great cause for concern for many of them. I think it is fair to say that the majority of advisers have transitioned their business and continue to do so, where able to fee for service, but many with their client’s interests front of mind, recognise that there are instances where it is in the client’s best interest to leave the arrangement as is. Commissions are also generally on the decline as clients pass away or move accounts to newer products, where able. Certain advisers commenting on these forums seem to have tunnel vision, most likely due to a lack of experience, understanding or time in the industry, clearly overlook that in some cases, turning off commission and transitioning them to a fee for service, often at greater cost to the client, may breach best interest duty. I do support the end of commission grandfathering, where the client benefits, but as things stand, the product provider is the only likely winner. I would be interested to hear from the advisers pushing the end to grandfathering regardless as to how the client will be better off…..?
Ben, go away with your logic & sound reasoning, it is not helpful in this emotional debate. (That’s sarcasm for those that can’t think beyond their own limited experience).
That’s all legitimate points and you’re just trying to do the best for your clients, I can see that, but you and are lot of advisers here simply seem to not understand that the government changed the rules in 2013 and advisers simply aren’t understanding what a fiduciary relationship is. I suspect because training is coming from Bank owned dealer groups that work on FUM. It’s only a matter of time before the son or daughter of one of those lovely elderly clients that cry when you part ways sues the heck out of you.
Sorry Anne, am I missing something or have you misread my comment? Point 1 is that I am not aligned or licensed with any bank owned dealer group and point 2 is that over 95% of our revenue is from active FFS client billing, so the small revenue drop from legacy commissions I mentioned is neither here nor there to our bottom line and point 3 is that we continue to look after many elderly clients in the above mentioned legacy products, at financial cost to our practice on a time basis. These clients make up a very small percentage of our clientele and I can tell you that the “son or daughter” you reference, who often oversee their affairs in older age or upon death is very appreciative that we have continued to look after their parents and have not tried to impose larger fees upon them to look after their affairs. Many of these sons and daughters you mentioned have actually become our clients as well because of the trust and respect their parents and in turn themselves had for us. In the example I have given above and how we continue to look after these small percentage clients is clearly in their best interest and not ours, so your comment is hardly applicable to the example I have given. Further, with clients in the lifetime annuity scenario I have given, the product provider cannot rebate commission back to an account that has no capital value. Therefore we either work pro-bono for the client going forward or they pay us a fee, that in most cases, they could not afford from their bank account. I am also perplexed as to how these children of our client will “sue the heck” out of us, when we continue to look after their interests for the remit of a very small retainer? A Fiduciary duty is not about commissions vs fees, it is a legal obligation of one party entrusted to look after someones affairs to act in the best interest of that party.
Your not alone PM….I don’ get this article either. How does turning off commissions create a bigger conflict? If the clients need/want advice, then charge a fee and deliver the service. It’s not rocket science.
It is really easy to understand. Turning off the commission does not mean that this will be rebated back to the client (in some instances with annuity products it cant be). If the client was then to be charged a separate fee to deliver a service then they will in effective be double charged – how is that in the clients best interest?
But why does having the commission switched off mean the client then needs to switch out of that product causing tax and whatever other events to be triggered? That’s what the article is saying.
Many commentators either don’t understand or have forgotten that the commissions paid for these legacy products were not for advice. Commissions under FSRA were legitimate and not connected to advice. The “advisers” that receive commissions do so for selling (in some instances) and maintaining (most instances) the client in the product for the manufacturer – they are an agent of the manufacturer.
The concept of “fees for advice” for investment products didn’t come about until FOFA. Some advisers may have agreements with their clients otherwise but there is no contractual obligation on an adviser to provide ‘advice’ in exchange for a trailing commission.
We may not like this situation now but it was legitimate and legal then, thus the grandfathering. People need to understand that if the commissions are turned off then so is any obligation to the product manufacturer to service the client – I think this is what Mr Ardino is trying to articulate as the issue. It will be the clients that only have small balances that suffer the most as they won’t be of value to the adviser.
If people have an issue with this today the best way forward would be to provide client’s with better reporting on the commission their adviser receives and the services they get in exchange. This should be a product manufacturer obligation and decision. The client can then make an informed choice as to whether to leave the product or not, in this instance they may wish to seek advice to understand unintended consequences – the advice won’t be free though – it never is!
well said.. Fees are disclosed on statements to clients and I keep thinking that in many instances, they have an option to leave old products at anytime. At what point does an individual take ownership of their financial future – where does it leave the industry if this is rushed through… there are no winners
They have the option to yeah… But they are also paying a financial planner to advise them on these things! That is our job!
Most people stay in a commission paying product because they assume their adviser would tell them otherwise if suitable… Not just keep them in the product because its a low touch revenue stream.
I just had to tell a client (that I recently acquired from another adviser) that her commission legacy pension fund is paying a commission and if she moved to a fee paying fund then her centrelink payments will be lowered.
She couldn’t give a toss about commission v fee. She just wanted to make sure she could buy groceries and pay her bills.
For all you saying it’s the best thing for the client – think again. It’s not always!
Just rebate the commission to her and charge a fee arrangement instead. Gets around this whole issue. That situation where the product is actually better is an outlier, most commission are simply retained because advisers dont service their clients. Not say thats you, but we all know plenty of practices where they are just sitting on thousands of ‘clients’ they could never actually service.
Very true but a blanket rule won’t fix the issue. As you write, there are advisers that do service their clients and are paid a commission to do so.
In my case, rebating the commission is possible then charging a fee. I have no issue with this if it is a one off case. I can’t do it for a lot of clients (say 50 plus in legacy pension accounts) as the admin and accounting exercise would be a nightmare and very time consuming. All in vain also as my clients don’t care as long as they are being looked after.
Again, I stress, a black or white approach to this isn’t the answer.
I will organise or join any class action.
This is a rubbish argument. It assumes you have to move the client into a new product as there is no longer commission on the current product. Does that mean that the existing product was not optimal, but was chosen because of the commission? At the end of the day, what do you think consumers want – I don’t think that would be too hard to work out. Providing what consumers want, will build the trust.
Eugene is on the money.
Forcing an adviser to get someone out of a legacy product is an issue. The issues are multi faceted and include the commercial reality of an adviser needing to be paid for what they do. Faced with the conflict of rearranging the clients investments in order to get paid for the service being provided which includes legacy investment products means that the adviser will be faced with potentially crystallysing capital gains, tax and exit fees simply to be paid for providing the same service. These cases are few and far between but they exist.
The whole issue can be avoided by accepting that best interests already provides the motivation to move clients out of legacy products if it is in the client’s best interests. Trails from grandfathered products are evaporating daily and will largely be gone in 5 years or so. Death and/or retirement is forcing a migration of even the most rusted on legacy investment products.
Ombudsman intervention is enough threat on its own to trigger action, not to mention PI insurers will likely start using the degree of grandfathered investment trails as a potential claims indicator. Legacy investment products will go the same way as ag and forestry product investment. They will become uninsurable.
[i]”Faced with the conflict of rearranging the clients investments in order to get paid for the service being provided which includes legacy investment products means that the adviser will be faced with potentially crystallysing capital gains, tax and exit fees simply to be paid for providing the same service”[/i]
What are you talking about? Have you ever heard of an invoice?
Lifespan are a D grade dealer group, end of story.
the issue is less about conflict than about who will survive the cut, depending upon how many clients are in a grandfathered product, the simplest method would be to provide a sunset date on the ceasing of grandfathered commissions, 3 years is no where near enough time to sort this out (depending on the numbers involved) However one way or the other those on grandfathered commissions will fall into at least 3 categories 1. trail too small and therefore the client will drop off the radar and not be serviced. 2. Client happy with current scenario, and will adjust to the new fee regime , no change to level of fee structure 3. Client paying a lower trail, not keen to pay more with the added compliance burden this change will bring . there may be some other permutations of these options, but if a blanket ban came in immediately (and we haven’t discussed trails for life products yet) then in my case there would likely be some job losses in my business and that would be counter productive IMHO . Howsoever Haste seems to be the way our regulator and Government like to behave these days
It will be interesting to see whether this push by some to ban commissions will override contract law. I wonder if commissions will be banned in every industry country wide? What is good for one..
Legislated Law over rides contract law.
Queue the lefty comments…it’s an outrage that an adviser receive a commission of 0.4% on an investment of $100K, providing a service for a client for $400 per year…what an outrage! No, let me guess, no advisers receiving a commission (which used to be the only option) provide a service to clients, and all clients are devoid of any intelligence and believe their adviser works for free because the commission is hidden….in plain sight on every annual statement. Or heaven forbid if the commission is $4K on a $1mil investment and the adviser provides a higher level of service for this, whilst running a business and employing staff.
Let’s pause for a moment and wait until they finish paying a real estate agent 2% commission on the now average $1mil house, $20K for one month of taking phone calls and opening the front door 8 times, but hey that’s ok, just because that is how it is. Now back to to those despicable commissions advisers get…..
Commissions are every where in life.
Have you tried to get service from an Optus shop after you have purchased your phone!!! Where is the disclosure that they are receiving a commission based on the amount of phone calls you make!!!!!!!
I totally agree, however commissions in financial advice are no longer acceptable to society. I don’t necessarily subscribe to this view, but it’s fact. Commissions will be legislated out of existence. Lobbying & class actions will not prevent this. It is unfair to advisors and some clients, but reality. It’s evolution. You can rage at the wind, or work on preparing your business for the inevitable. We talk about legislative risk as a concept with our clients, well here it is in action.
Let’s all hear about the commissions paid to GPs for expensive specialist referrals, shall we? Oh no, butter wouldn’t melt in the mouth of more respected professions!
the issue with trail commission is the clients service from the adviser is unaccounted for, and in some cases clients pay trail commission and never hear from their adviser for years, if you charge a fee then the adviser is accountable to provide a specific service as agreed between client and adviser, and this needs to be renewed by the client, simple….
I don’t understand the argument, commissions are gone lets deal with it and move on…
Absolutely agree – if product providers pass the savings onto clients and advisers can dial up their disclosed advice fee – how the hell is anyone worse off??? Except for advisers who cannot justify their advice fees. These dinosaur advisers living off hidden commission need to move on!!
It has been law for several years now that all commissions are disclosed on each and every annual statement from product providers, and in some cases bi-annually. The argument of them being hidden is ridiculous.
Furthermore, regardless of how ongoing trailing commissions are sliced and diced, these payments are tainting the image of financial planners in the eyes of the public, specifically among those who have not engaged a planner. It’s no wonder this cohort have a poor view of financial planners. If we are to receive recognition as a profession (and we are heading in the right direction) then there will need to be some adjustment and uncomfortable decisions made in respect to the financial implications of not receiving trailing commissions. We shouldn’t lose sight of the bigger picture.
If you want to improve your reputation as a financial advisor I suggest you work on delivering better service to your clients. Bickering about other advisers receiving grandfathered trailing commission is not relevant to you or your clients and their perception of you.
Its call public discourse John, and by the way, your engaging in it as well…
My point is that if you want to raise the standards of financial planning focus on what you do for clients rather than arguing you are more professional because you don’t receive commissions ? How is that relevant to your client ?It’s like going up to a lady in a bar and saying go out with me because I am not as ugly as that other guy.
People keep talking about the “cohort of people that have a poor view of advisers” – get over it, this cohort will grow and grow as advice becomes more and more expensive and we as a profession will become more out of touch.
“Professionalism” will not open the door to a flood of new clients, it will just make it more expensive and close the door on many.
I think some advisers need to realise that most people don’t care about their super, wouldn’t have a clue about what income they receive each pay and haven’t even considered insurance as important apart for their car.
If we want people more engaged in their financial plans then we need to educate people at school about these things, show them what it is like to live on the poverty line in retirement and what happens when the primary income earner dies of a heart attack. Professionalism is admirable but also very self serving.
If you think that commissions have anything to do with the tainted image of advisers you are utterly deluded.
We have a tainted image because there are rogues in our industry, just as every other industry. You have advisers that are using their clients funds inappropriately and dishing out poor advice, this is what causes our reputation to be what it is. Will banning commissions stop these rogue advisers from using client funds inappropriately etc? Ye, i thought so.
I think that the issue is that many advisers provide basic service to clients in legacy trail commission products but no formal advice. Advice was never an obligation for commission. Imagine charging small commission only client’s every time that they wanted a credit card updated, bank details changed, nomination of beneficiaries changed, address changed, a reprinted statement etc etc none of these things are advice yet this is what the product manufacturer pays the commission for and why our name and number is on the top of every statement the client receives.
When people begin to understand the difference then they will see that providing service is one thing and advice is another.
It is a ridiculous argument to say that if people don’t get some sort of service every year then the commission is switched off. The logic follows that if I don’t the electricity company out for a fault every year then I will get a refund somehow for not having used their technicians? Similarly if I don’t drive on a particular public road this year should get a tax return? Remember the trailing commission is for the basic services that are provided by advisers, NOT for advice – FOFA made it illegal to receive a commission for advice.
Plenty of people are receiving service and attention due to the commissions embedded in the product. Drop the commission and these clients will be dropped also.
We’re not a charity and we don’t have the benefit of the Medicare billing arrangement medical practitioners exploit.
Regulators and industry associations are naïve believing this will produce a good outcome.
I really don’t understand this rusted old argument. Take away the trail and you can just charge the client a far and reasonable on-going advice fee. If you can’t justify an on-going service fee then you can’t justify the grandfathered commission.
No-one expects an adviser to be a charity but no-one wants any adviser to receive a payment for something they can’t justify. I actually think that the big issue here is not servicing the client but the hit soon to retire advisers will feel when they sell their businesses if they don’t have the grandfathered commission for no service.
The people who read theses stories know how the system works and what advisers really do for their money so I think its naive to put forward the hollow arguments to retain grandfathering.
Exactly, well said. Its just people trying to fight for their self-interest over the interest of their clients. Embarrassing to be an adviser sometimes.
Not True this fee’s do not continue when they sell their books Grandfathering is lost when the planner moves on…. current rules already….
Yes, but I would love to hear how you would justify to the client the product provider retaining the commission on top of the admin fees they already receive from the clients account and the client having to pay more by way of the advice fee for the same service. I think you would find that your theory differs in reality!
If these people value your service and attention then they will pay you for it! If they don’t, then…..
No one expects you to work for free, but they do expect you to actually do something of value.
I don’t get his argument that removing trailing commission creates a bigger conflict of interest for the adviser? Can someone spell it out to me? Sorry for being thick.
There is no conflict mate. Good advisers will either find a new product that is better. Or if there are CGT/grandfathering issues then they can dial up their disclosed advice fee in the current product.
I was just about to say that.. what is this bigger conflict?
Nah, there is no argument. They seem to think its impossible to charge a client a fee instead of a commission… Its laughable stuff, clutching at straws. Unfortunately seeing so many dealergroups and advisers fight to keep grandfathering shows how broken the industry is.