Financial planner commissions on borrowed time

Financial planning commissions may not be extinct in the financial services industry but they are now a seriously endangered species.

Two of the industry’s most pivotal organisations — the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) — have moved to separate the sale of products from the provision of advice.

The importance of IFSA having developed a charter for approval by its membership is that it means product manufacturers (broadly represented by IFSA) have developed a position which is broadly consistent with the position adopted by the FPA as a representative body of those providing advice.

No one should be too surprised by the fact that IFSA’s position is less than totally clear-cut. However, so far as individual financial planners are concerned, the IFSA charter represents an advance and one that should serve to underpin the position adopted by the FPA.

The danger for both the FPA and IFSA is that while they are moving in the right direction, they may not be moving quickly enough to avoid legislative or regulatory intervention on the part of the Government.

Notwithstanding the installation of a new minister, organisations such as the consumer group Choice and the industry superannuation funds are lobbying strenuously for highly prescriptive approaches which, though flawed, are likely to prove attractive to politicians looking for a relatively quick fix.

The long-term answer lies in a regime that clearly differentiates those involved in product sales from those providing advice. What is more, there is a need to ensure product sales are not camouflaged by terms such as ‘salaries’ and ‘fee-for-service’.

Even taking commission-based remuneration out of the equation, there are too many salaried and fee-for-service advisers who could be accused of selling their clients into a very limited range of products, and that includes some planners retained on salary by industry superannuation funds.

Those assuming the high moral ground should check where they really stand.