ASIC set to crackdown on financial planner payments

There are suggestions that ASIC may have concerns about “transition” and “retention” payments made to financial planning principals, and as Mike Taylor reports, perceptions can be as damaging as facts. 

Would a major financial services institution pay a “transition fee” or “sign-on” fee of $1 million to a financial planning principal to change dealer groups if it did not expect something in return? 

That is the question being canvassed across sections of the financial planning industry amid suggestions that the Australian Securities and Investments Commission (ASIC) may be casting a curious eye across the various monies which have been paid as financial planners changed groups after events such as AMP Limited’s acquisition of AXA Asia-Pacific and the Commonwealth Bank’s acquisition of Count Financial Limited. 

In the immediate aftermath of the announcements of both transactions, Money Management and other media outlets were writing stories about the manner in which competitor companies were seeking to lure disenchanted planners, with National Australia Bank and BT Financial Group being freely discussed as players in this game. 

Throughout all of this – and despite suggestions by people such as Paragem chief executive Ian Knox that such payments were unhealthy and perhaps in conflict with serving client best interest – these reports seemed to elicit little or no interest from those running ASIC. 

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At the height of media coverage of the “transition” and “retention” payments being paid by those who owned the various dealer groups, it was suggested that at least one financial planning principal had received in excess of $1 million to make a change. 

While no one was prepared to actually confirm the payment of $1 million, no one actually denied the existence of payments to either “retain” or “attract” particular planning firms, with those operating under the Count banner seemingly particularly attractive. 

But what no one, apart from the likes of Knox, was prepared to discuss, was whether such payments should actually be deemed allowable and capable of acceptance by planners without creating the perception of a conflict of interest. 

Why would a major financial services institution pay $800,000 to a financial planning firm to “transition” to a particular dealer group, if that dealer group was not then going to act as a conduit for the distribution of that institution’s products? 

And, from the point of view of the planning principal who accepted the payment, can he/she convincingly assert that it will not prevent them acting in the best interests of their client? 

From a public perception point of view, the question must be asked whether the payment of transition fees to planners could actually represent the prepayment of an incentive which might be viewed as having equal standing as the volume bonuses which have been effectively outlawed under the Future of Financial Advice (FOFA) legislation. 

The argument which has been proffered by those responsible for authorising the “transition” payments is that they are neither conflicted – nor will they give rise to a conflict – because they simply cover the costs of a planning group moving from one dealer group to another. 

The bottom line, however, is that no one is denying that the existence of those payments and the aggressiveness with which they were offered served to skew the market for around three years, with people such as Premium Wealth Management chief executive Paul Harding-Davis lamenting that the scale of the payments being offered made it difficult to recruit quality planning practices. 

For his part, when the founder of Count Financial, Barry Lambert, got wind of the types of payments being made in the wake of his company’s transaction with the Commonwealth Bank, he suggested they simply weren’t playing cricket. 

If, as is being speculated, ASIC is now seeking to focus on the payment of “transition” and “retention” fees to financial planners, it has probably missed the boat, with the major activity having finished more than a year ago. 

While the collapse of dealer group Australian Financial Services (AFS) saw a flurry of activity earlier this year, it did not compare with the level of activity around the sale of Count Financial or AMP Limited’s earlier acquisition of AXA Asia-Pacific. 

ASIC has a great deal on its plate as it closes out 2013 and prepares to enter 2014, and the reality is that it is being placed under the microscope by a Senate Committee.

In those circumstances, its level of attention towards “transition” and “retention” payments is likely to be dictated by the resources it has available – and whether it sees the practice as representing a particular risk.