Drawing a line in the sand

The remuneration conundrum between a fee-for-service or commission model continues to rage, but all the while one financial services organisation has given a clear indication of the direction it is heading in for the long-term.

Throughout 2006 the Steve Tucker-led MLC has repeatedly made changes to business models that have reinforced its commitment to a fee-for-service based remuneration structure.

And these changes haven’t just been to financial planning advice models.

The process began in March this year when MLC launched its MasterKey Fundamentals product, a platform with no commissions included in its structure.

The move was designed to provide an investment vehicle that financial planners working on a pure fee-for-service basis could readily use, without having to dial down commissions as is the case with most products in the market.

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The new offering was also provided with a view to simplifying the investment decision for consumers, as it would allow them to make a meaningful comparison between MLC’s MasterKey platform and other products that do not contain commissions, such as industry super funds, more easily.

A further motivating factor for the product was to facilitate a cultural shift in the adoption of fee-for-service remuneration arrangements.

This initial foray into the fee-for-service remuneration business model was followed up in June when the MLC-owned financial planning dealer group Godfrey Pembroke announced it was changing to a purely fee-for-service advisory model for all of its clients from October 1 of this year.

The implementation of this practice saw MLC highlight other rarely discussed issues surrounding the debate, such as the impact on cash flow of switching to a new model.

To allay these types of concerns, Godfrey Pembroke allowed the fee to be negotiated as a percentage of funds under advice or a flat dollar amount. It did not insist on an inflexible, fully paid upfront fee that so many advocates against the fee-for-service model assume would be the case.

All of the initiatives introduced by MLC this year have been in an effort to reduce the scope for any conflicts of interest to occur throughout any arms of its financial services business.

And to reinforce its conviction to achieve this goal, August saw MLC change the valuation basis of its buyer of last resort arrangements with the financial planning practices incorporated in the group.

Under the new rules, all financial advisory practices operating under the MLC banner being placed on the market after October 2006 will have their contract value determined by a market valuation procedure, and not by using a fixed formula based on the volume distribution of inhouse products.

While MLC has declared its intentions to fully support the fee-for-service remuneration model in a bid to eliminate conflicts of interest, Steve Tucker has always made it clear his organisation is not attempting to take the moral high ground on the issue.

Earlier this year he said: “We don’t necessarily think it’s our job to decide which is better, commissions or fees. What we do believe is that it’s our job to provide choice and transparency to make sure people have the opportunity to work the way they want to work.”

But as far as MLC is concerned, there is no confusion over the direction in which Tucker sees it heading.

“Across our whole advisory network we’re helping our advisers transition to a fee model. We’re providing product that accommodates a fee model and we’re providing business support that helps our advisers move to a fee model,” he concluded.

— Darin Tyson-Chan