Counsel assisting the royal commission Michael Hodge questioned Colonial First State (CFS) executive general manager Linda Elkins on Tuesday about the firm’s post-FOFA commission arrangements.
Mr Hodge said CFS superannuation members were placed in non-commission paying accounts but charged the same as commission-paying products – with CFS pocketing the additional money.
The issue was raised with CFS by an adviser who traditionally rebated his commissions back to clients, emails tabled at the commission showed.
CFS’s response was that these accounts were commission-free and as such “commission is retained”.
“Are you aware that there have been some issues raised by financial advisers about the description of products as commission-free when, in fact, Colonial is retaining the trail commission?” asked Mr Hodge.
“I am aware there has been advisers raise the issue with us. I’m not sure about the link to commission-free,” Ms Elkins replied.
An email from CFS tabled by Mr Hodge read: “Thank you for contacting Colonial First State adviser services with your inquiry. The accounts are commission free accounts. Therefore, commission is retained.”
Ms Elkins acknowledged the issue is “not yet resolved” but added that it is under review.
“Presumably, one way to resolve it would be to say we’re not going to have trailing commission any more on these products?” asked Mr Hodge.
“Yes, that would be one way – well, we would still need to lower the fee obviously to take that out, yes,” Ms Elkins replied.
The hearings continue this morning, with Ms Elkins continuing to give evidence.
You can follow all of the action on a live blog hosted at ifa sister title, InvestorDaily: https://www.investordaily.com.au/superannuation/43410-royal-commission-superannuation-hearings
Its Ok people, the humble banks need money
they have a done a job on their customers
why not their employees as well
This commission is going the way of asic and apra
the sooner they ban vertical integration the better
Stop worrying about what the banks will or will not do. The banks are out of wealth !!!! This is all about what the commission will recommend and what the government will implement. I suspect one of the objectives of the commission is to create a burning platform that commission are not in the best interests of clients. FOFA started down this path. Historical commissions were exempt for reasons quoted in earlier comments. The product manufacturers will do what the law tells them to do. Advisers need to start thinking about business models.
The business model is the key issue here. Why fight the regulation? Redesign the model whereby product placement has no baring on practice revenue.
The bigger issues at play is Hodge constantly referring to the “banned” grandfathered commissions. The grandfathered arrangements are not banned. The government could not retrospectively remove these during FOFA reforms. Think about advisers acquiring business on a multiple of recurring income. How many business destroyed overnight ? This is the same principal as the “castle.” Industry is moving to fee for service but it takes time. No doubt commission is building burning platform for change. It may well be necessary but the full consequences must be understood. times are changing and the days are numbered for grandfathered commission, so speed in changing business models is very important.
True. Grandfathered commissions are legal under the law. They may not be popular but they are legal. Providing an inducement to an employer for the purpose of attracting or retaining members is illegal under the SIS act.
His choice of words are calculated to tie into the new community expectation provision that the Commissioner keeps referring too. This is more the Commissioner’s expectation, as he has been quoted as making comment that advisers should charge on the same basis as lawyers. The average client does not necessarily view a commission as bad if they are receiving some sort of value in return. If the commission topic keeps getting raised and manipulated then the media, as they have done will cotton onto the matter and change “community expectation”. This is turn may then influence legislators to change the law. The fact that due to various issues, the removal or rebating commissions will not necessarily flow back to or benefit clients and be retained by the manager is kept under the rug as this would simply discredit the agenda and outcome of Mr Hodge and the RC. The RC as well as the government know that certain commissions were grandfathered. It could be argued that the RC is being used as a platform to pedal the removal of commissions as their line of questioning hints very much at that. I support commissions stopping where there is a clear benefit to the client, however the fact is that a cookie cutter approach will not work due to many legacy issues (CGT, higher advice fees, Centrelink grandfathering etc)
ASIC want to Ban Grandfathered commissions and this is exactly what the institutions and banks will try to do, cut off the adviser comm payment and then keep the margin for themselves.
So clients still pay same costs but get no adviser to help them.
O’Dwyer, you better not even think of allowing this to happen !!!!!!!!!!
It’s ”ban grandfathered”, not ”Ban Grandfathered”. It’s not a proper noun.
How smart were the product providers, how dumb have advisers continued to be.
I have just read the CV for Linda Elkins, Executive GM Colonial from the CEW website – which is then public information. The one (and only) qualification stated there is “Linda holds a Bachelor’s degree from the University of Western Sydney”. The type of degree is not given. At the Colonial website no education qualifications for this person are detailed.
According to a Bloomberg bio: “She earned a B.A. degree in Applied Science from the University of Western Sydney in 1989.”
I then read some information about the career opportunities for such a degree, which include: An Animal Nutritionist (which comes in handy to ensure the fat cats are well fed), Crop Physiologist (again a great quality when it comes to harvesting fees from dead folks) or an Environmentalist (which would come in handy protecting when trying to protect the execs being hunted by the Royal Commission). This would surely be a related degree..
Well, that figures!
Applied Science can be very useful, as scientists are known to have a curious mind. They generally do not immediately believe what they are told, and apply the scientific method to question and seek hard ‘evidence’ to confirm matters. This disbelieving attitude can make them a bit of a pain in some quarters.
Admittedly not a related degree, but still these qualities can be quite handy in managing people’s money.
Unfortunately they do not seem to have been applied here.
So, what?!
Hey IFA!!!! I do not appreciate you guys censoring my comments – particularly when they contain no bad language, racial or sexual connotations.
Didn’t realise I had to agree with your thoughts and your standards to go public!!!!
“man yells at computer” – Oil on canvas, 2018. Beautiful.
Gold for you Sir Boris 😀
Step back from CFS for a minute. Mr Hodge keeps saying “grandfathered commissions are banned.” is this misleading ? to my knowledge they are legal until legislation is passed that they are not. During introduction of FOFA, the government after submissions from the advice industry determined it would be unconstitutional to retrospectively ban these commissions. They are fully disclosed and as long as advisers deliver the service then no issue. has there been sufficient transition to fee for service such that banning all historical commission is not an issue ?
So, CFS kept the trails, took them away from advisers who earned the trails initially, the media makes the adviser look the bad guy, and the customer pays all along the way. Sums up the current landscape… Adviser “bad guy”, client suffers, yet big end of town profits.
ODwyer has defended her bank buddies all along and this is the utter theft and rubbish she has allowed the big institutions to get away with.
This should be unbelievable but very sadly isn’t. And the reason “Not yet resolved” very worthy of a Faulty Towers sketch.
“Fawlty” Towers (after the owner, Basil Fawlty)
This can only relate to “pre FOFA commission accounts” as commission was banned by FOFA. In most cases the relevant products remain identically priced post FOFA and Adviser Fees are now added and debited to the account separately. In some cases a new “wholesale” version of products has been released, but the reduction in fees is substantially less than the previous commission rates. So product issuers have kept most if not all the commission previously paid to advisers. This is what should be investigated.
The reason that this has happened across the Industry is that ASIC was asleep behind the wheel and just didn’t care to respond to any of my complaints to them over a period of 10 years !!!. I also looked after an old client product book from AMP after that adviser gave it back under the Discovery program , for 12 months only and AMP paid me half the trails and kept the rest !!!
I wonder if the RC will also hear how CFS cut adviser commission in full on risk advice provided through the platform yet never passed on the saving to members.
My understanding is that this has been going on for the last 4.5 years, overcharging and scalping, nothing to see here, next…