Commission remains a thorny issue for planners
Joe Hockey’s office is likely to be bombarded with reams and reams of responses to the federal government’s draft CLERP 6 legislation.
Joe Hockey’s office is likely to be bombarded with reams and reams of responses to the federal government’s draft CLERP 6 legislation.
While there is sure to be a wide array of reactions from the various interest groups in the financial services industry, two interesting issues have emerged which have long been sore points among financial advisers.
The first relates to the term “independence”. This one has been a chestnut since the birth of the industry. CLERP 6 draft legislation (or the Financial Services Reform Bill as it is now known) restates what the Australian Securities and Investments Association has been saying for years. It says you cannot call yourself independent if you are owned by a product manufacturer or you receive any form of commis-sion from a product manufacturer.
This probably eliminates every financial adviser in Australia from being “inde-pendent”. Only a handful of planners refund trail commissions to their clients and even rarer is an adviser who turns away all forms of soft commission.
This is and has always been a blow for many advisers. The ability to position your-self as unbiased in the client’s eyes is paramount. Advisers argue their opinions are not swayed by their owners or the fact that they receive commissions and they should therefore be able to tell their clients they are “independent”. The govern-ment has listened to the argument and given its final answer as a resounding no.
There are moves afoot to try to rescue at least a partial “independent” status — something like “independently owned”. It will be interesting to see how this un-folds but I suspect the answer will be the same.
The second element and a related part of the draft legislation is commission disclo-sure for risk products. Despite what many elements of the advisory community are saying, advisers will have to disclose commission they receive for recommending risk products. The only concession the government has offered is that advisers do not need to disclose that part of the commission that is payment for back office services.
Disclosure of commissions on risk products has been one of the headline agendas of the government for years. It has been met with staunch resistance each time the government has tried to introduce it into legislation, but this time it appears it will stick.
Both the independence and disclosure issues revolve around the thorny issue of disclosure. The issues go right to the heart of the uneasy relationship between product providers (life offices, fund managers) and product distributors (financial advisers).
There is little doubt that commissions will continue to underpin the relationship in the sort to medium term so the financial planning industry will be forced to deal with these sort of thorny issues in years to come.
There is sure to be ample discussion on all aspects of the CLERP 6 draft in coming months in the lead up to the deadline for responses in May. Let us hope that at the end we can bid a fond farewell to these issues as growing pains in a quickly ma-turing industry.
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