Platforms and wraps: A matter of perception

It is now only a matter of weeks before the recommendations of the Parliamentary Joint Committee on Corporations and Financial Services (Ripoll Inquiry) are due to be tabled in the Federal Parliament, and with that tabling will undoubtedly come renewal of the debate around fees, charges and commissions.

But, if one thing has been made clear in our examination of platforms and wraps in this week’s edition of Money Management, it is that financial planning operates within a highly commercial and, therefore, highly competitive environment.

While there may be no questioning the need to separate product sales from the provision of financial advice, there can be no doubting the range of products on offer or the actual competitiveness of the product sellers.

Indeed, what the platforms and wraps feature reveals is a multi-billion dollar industry, within which Australia’s largest financial services companies are fighting for market share and the profitability necessary to drive shareholder returns. That such an environment gives rise to the payment of volume bonuses and commissions to attract and retain the support of dealer groups and planners should surprise absolutely no one. Stripped of such arrangements, the product providers would have to find new ways to maintain their commercial edge beyond relying simply on value and price.

And, before anyone mounts their moral high horse, industry superannuation funds are no strangers to bonuses and payments from the fund managers who compete for their multi-million dollar mandates. Indeed, some of the bonuses that flow to the industry funds emanate from exactly the same place as those that flow on to dealer groups.

In circumstances where there has been much discussion about commissions, volume bonuses and other fees and charges attached to funds and platforms, it is worth considering the words of Colonial First State chief executive Brian Bissaker, who suggests that those arguing for the abolition of such arrangements have an obligation to come up with a viable alternative.

Thus, while the Ripoll Inquiry may, indeed, come up with recommendations that go to the elimination of volume bonuses and an alteration of the commercial relationships that exist between platform providers and dealer groups, it will also need to spell out an alternative.

Without a viable alternative being proposed, there is the likelihood the industry will simply metamorphose the value chain, with dealer groups becoming product providers that then

outsource to the platform providers.

Competition is not the issue. The issue is eliminating perceptions of conflict of interest.

— Mike Taylor