ASIC slams commissions
The Australian Securities and Investments Commission (ASIC) has delivered one of its most stinging criticisms of commission-based selling of financial planning advice, and called for dealer groups around the country to move to a fee-for-service mode of adviser remuneration.
In a statement released last Friday, ASIC assistant chair Jeremy Cooper outlined what he called the numerous “deficiencies” of trail commissions while applauding recent moves to a fee-based mode of adviser remuneration by some of Australia’s largest financial planning dealer groups.
“A fee-for-advice model requires planners to explain and justify the value of their advice in a much clearer way. Consumers can then decide for themselves how much they think the advice is worth,” he said.
Cooper said it was harder for consumers to figure out how commissions worked, “let alone how much they are going to pay in the long run”; that remuneration based on commissions increased depending on the amount invested “regardless of whether any value is added”; that payments could go on after the consumer has forgotten the advice; and that commissions paid by product issuers tended to influence the quality of advice consumers received.
As well as endorsing the recent move by ANZ Financial Planning to a fee-based adviser pay model, Cooper also praised the Financial Planning Association for “its work on a code of practice on conflicts of interest, aimed among other things at improving accountability and transparency on fees”.
As exclusively reported by Money Management last November, ANZ Financial Planning is to roll out a fee-for-service remuneration model to all of its 330 planners during its current financial year, which runs to September 30, 2006.
And in December last year, ING-owned RetireInvest told Money Management exclusively that a fifth of its over 200 planners had already taken up its new fee-for-service model, with the rest to follow suit throughout 2006.
Of the ANZ Financial Planning move, Cooper said: “We are pleased to see another major industry player moving to this model, following earlier moves by other participants including AXA, Financial Wisdom, MLC and RetireInvest last year.
“Looked at from an industry wide perspective, a move to a remuneration model where the consumer agrees to pay a clearly identified amount, whether in a lump sum or over time, is a move to less conflicted, and ultimately better advice.”
The Australian Consumers’ Association (ACA), meanwhile, also endorsed any moves towards fee-based adviser pay.
“Whilst most planners are doing a decent job, there is an incentive created by the commission pay structure for a small number to put their own interests in front of their clients’ [interests], and I think Westpoint could possibly be an example of that happening,” said ACA policy adviser Gordon Renouf.
Recommended for you
Clime’s disposal of advice licensee Madison “needed to happen yesterday”, managing director Michael Baragwanath has told Money Management, as he concludes a severe cost-out period at the business.
As Viola Private Wealth continues on its growth trajectory, the wealth management firm has appointed a seasoned investment professional to be its first chief investment officer.
Financial advisers who wish to implement artificial intelligence in their practices need to undergo a change in their mindset as to how they use technology.
With United Global Capital expected to constitute a substantial portion of CSLR compensation in FY25–26, what has AFCA ruled in its determinations on the company so far?
