Changes to remuneration dramatic solution to imaginary problem - Millennium3

Millennium3 has voiced its opinion on the Financial Planning Association’s (FPA's) financial planner remuneration consultation paper, saying some changes to remuneration practices are “dramatic solutions to imaginary problems” that are likely to have adverse consumer outcomes.

In a letter to the FPA, Millennium3, one of Australia’s largest advice groups, said it does not believe that changes to remuneration practices are central to either consumer confidence or professional practices.

In its opinion, “unprofessional” advice could be put down to inadequate training, poor supervision, product complexity, ineffective research, product biases and association rather than remuneration practices.

Whenever something goes wrong the focus is put on remuneration “rather than some of the more compelling reasons”, Millennium3 head of advice and advocacy Sean Graham said.

In its letter, Millennium3 raised questions about the FPA’s linking of high up-front commissions and high profile corporate collapses to support an alignment of remuneration with advice.

“With respect, this reasoning is flawed,” Graham said.

While commissions and collapses may be correlated, no causal relationship has been confirmed, Graham pointed out.

“We haven’t proven the link, even with some of the Westpoint stuff,” Graham said.

There is still a question hanging over whether or not it was “the commission that drove the behaviour or whether the behaviour would have occurred anyway”.

Millennium3 suggested “a more likely explanation for these failures is poor governance structures and ineffective product design".

Standing up for the majority of planners, Graham said high up-front commissions would not induce a competent, professional adviser to recommend a defective or inappropriate financial product.

Millennium3 said the only real measure of whether advice is professional is the way in which the advice engages, informs and satisfies the client.

Rather than looking at the actual cost, the issue should be around transparency of the cost, according to Graham.

“I think the focus is too much on the actual dollar figure,” Graham said.

Graham likened the situation to buying a car. “If it costs you $10,000 for a car, while that might be cheap … if it doesn’t move and it's not going to get you where you want to go, it’s not a bargain, it’s a lemon.

“If you’re paying top dollar and getting a Ferrari, well that’s fine because you’ve got all those other benefits.”

Not recognising the relationship between “how much does it cost” and “what does it deliver” raises questions about what it is trying to be achieved, which is “a better situation for the client”, Graham said.

The letter also expressed concern about the paper’s failure to differentiate between the fundamentally different natures of investment and insurance products.

Barring advisers from receiving commission on insurance in favour of “dialling up fees” is a simplistic solution to a non-existent problem and one likely to exacerbate the already high incidence of underinsurance, Millennium3 told the FPA.