The SCC – which was initiated by consumer advocacy group Choice in 2012, and was helped to get off the ground by former Macquarie CEO Allan Moss and Vanguard CEO Jeremy Duffield – penned a submission to the parliamentary joint committee (PJC) inquiry into adviser standards, arguing that competency levels are too low and railing against a number of issues in the advice industry.
In particular, the submission criticised the asset-based fee model of adviser remuneration as well as alignment to product manufacturing.
“FOFA did not remove all forms of conflicted remuneration and new forms of conflicted remuneration have replaced older models,” the submission states.
“The dominant form of remuneration post-FOFA is asset-based fees or percentage fees.”
Percentage fees are problematic because they “obscure the cost of full advice” and also “incentivise advice towards assets from which a fee can be deducted”, the submission contends.
It adds that the proliferation of this fee model will “stand in the way of professionalism” for the advice industry.
In addition, the submission took aim at “alignments between advice and product makers”, which it says creates conflicts “inconsistent with advice given”.
The balanced scorecard approach adopted by some licensees and “very low platform licensing fees” are also forms of conflicted remuneration, it said.
Either way, I don’t care. I’ll just reverse engineer the number.
This is such a red herring.
Could not agree more! it always seems to come from the huggers srounching off the scraps on the outside of the real game,and that is dealing and helping the client,something these two have never done,these trumpet blowers have not a clue, total oxygen thiefs who are about as helpful to the advice industry as a concrete parachute.
Where were all these self righteous advocates of fees only and no asset based commission twenty years ago when client balances were $ 10,000 or so and we were earning $ 100 per client and helping them to build their balances. Strangely silent then, weren’t they. If we had a Union, they would have had us striking! Funny where all these big mouths and know alls come from.
I campaigned against conflicted remuneration and commissions for two decades. It’s ironic that unions, ASIC, governments and even some advisers are still unclear that the conflict comes not from HOW the fee is derived but from WHOM. If clients pay on an invoice then it matters not how the fee is calculated (it’s a matter between client and contractor) but when a third party pays an adviser without a contract agreed between client and adviser THAT’s when the potential for conflicts arise.
My clients pay me from my invoice each year (i.e they opt in and see a full disclosure every year) and either pay me directly or instruct their super/fund to pay me that agreed amount, so I have NO conflicts of interest and client is always 100% in charge.
It’s the bad old practice of the third party arrangement wit the adviser (without proper regard and reference to the client) that creates the conflicts, both real and/or potential. It needs fixing.
What matters to the client is the total cost they incur and the value of the services provided. We charge some clients a flat dollar retainer and others a percentage based retainer. To argue that a flat dollar retainer somehow implies superior ethics and quality advice is ridiculous. We have seen accountants and solicitors share exorbitant fees on this basis where the quality of advice was poor. Curiously some fund managers that charge a percentage fee to manage portfolios also advocate that advisers should charge a dollar based fee to manage client portfolios. Perhaps we should change our focus from defining independence to defining hypocrisy and self righteousness.
Matthew Ross…are you saying that high quality,compliant,well reasearched financial advice appropriate to a clients needs and objectives and provided by a planner who is not linked to an institutionally owned or controlled AFSL and is remunerated via a fee that is based on a percentage of invested monies and clearly identified in $$$ terms is providing inferior advice?
Irrespective of your current personal philosophy on this subject and your businesses website sell, do you have documented,identifiable and verified proof this is in fact the case?
It appears you have in fact spent a longer period of your career being remunerated via asset based fees than you have charging your clients direct fees.
Does this mean that for those first 10 years, all the advice you provided was inferior, substandard, not appropriate for the clients needs and objectives or did not provide the client with valuable guidance and direction?
…been saying it for years…so have all the truly independent advisers.
There is absolutely no let up to the hypocrisy that exists from these people.
Former CEO’s who may once have been paid massive performance related bonuses possibly based on percentage increases in FUM and profitability,are now openly criticising adviser remuneration via asset based fees. Is it appropriate that the advisers remuneration is relevant to the performance of the investment, either positive or negative, or is it more appropriate the consumer is charged the same fee if the value of the client’s investment has significantly decreased due to market forces beyond the advisers control?
I would have thought consumers would far better understand and accept a reduction in adviser remuneration if there had been a period of underperformance and conversely an increase if performance had been positive and had produced significant returns to the client.
interesting pairing of executives …both of whom ran businesses that were asset based funds management …how times change .