Clients deserve to know how you are paid
The issue of planner remuneration is one which has been at the centre of debate for quite some time. Most planners with some time in the industry will be aware that the split over fees or commissions has been argued in countless forums, sometimes to little effect.
However, putting that aside for the moment, the real issue involved with planner remuneration is no longer how it reaches the planner but how much of it is revealed to the client.
Elsewhere in this edition, Tom Collins says that the issue of planner remuneration has the potential to be labeled a scam, and that when the mainstream media gets wind of the way planners are paid more questions will be asked. Collins goes on to say that some of the answers may make planners uncomfortable.
Less than a day after Collins sent that article in for publication, a major metropolitan daily contactedMoney Managementto discuss the issue of planner remuneration. One comment made in that discussion was that the topic, while being one of the oldest for the industry, is becoming something of interest for consumers of financial services and products.
In most cases, financial planners and advisers should be fairly comfortable with the notion of revealing where their income is coming from. Disclosure rules are not a new idea and have been with the planning profession for quite some time. Their importance has been further underlined with mention also made to disclosure in the Financial Services Reform (FSR) Act, which calls for disclosure on a much wider range of products than in the past.
This has met with some resistance from sections of the industry but on the whole, it is accepted and complied with and for that, the planning profession should be praised.
However, it is the less than obvious forms of remuneration which will draw criticism, and these forms are normally categorised under the heading of ‘soft dollar’.
While soft dollar style remuneration has been around for quite some time, and tacitly accepted by many, its age does not make it any more palatable to consumers who have become used to getting more information than they want or need.
In fact, many consumers may not begrudge planners the soft dollar style remuneration they receive, whether it be golf days, overseas study trips or subsidised offshore conferences.
Rather, their concerns will probably be how soft dollar remuneration will affect the advice and services they receive from their financial planner.
Many planners and advisers would react strongly to this, saying that this has no affect on their work as professional providers of financial advice. But if this information is not made public, how can consumers be comfortable with that claim?
Our society is built on the idea that knowledge intentionally hidden is usually done so because it is sensitive or embarrassing. Soft dollar easily falls into that category, mainly because it could be seen to exert undue influence.
If it is true that consumers are learning more about the nature of financial services, it will only be a matter of time before they start to quiz advisers about all forms of remuneration.
On the other hand, if clients don’t care about soft dollar it would be a good thing for planners to reveal it anyway, if they are keen to promote the giving of advice as a profession instead of an industry.
The second course of action will not be easy, but it will probably be a lot less embarrassing for the planner, and is consistent with a proper working relationship with clients.
AUTHOR
Jason Spits
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