Franklin Templeton CEO on the benefits of advice commission
Around a quarter of the population would benefit from advice via commission compared to fee-based advice, particularly younger investors, according to Franklin Templeton’s chief executive, Jenny Johnson.
Current fee-based advice structures excluded a large percentage of the population who were considered too small to take on as a client, or could not afford them, and were standing in the way of younger investors seeking financial advice.
“What you see in the global trend is, in 2008, we had a regulatory push that said, ‘Hey, people are paying for advice; we want to make sure that’s external. They need to be able to see it, so we’re going to take it out of the product,’ and that pushed a lot of people to fee-based [advice],” she told audience members at the 2023 Morningstar Investment Conference Australia.
“I do not agree, and I think that’s the model that has come up in Australia and the UK, that 100 per cent of advice should be delivered fee-based. I think there’s about 20 to 25 per cent of the population that is better served paying a commission.”
She said the superannuation system meant Australia had a good market compared to others worldwide but younger investors were being penalised.
“I think with what Australia has set up, with compulsory saving through the employer, that it’s actually one of the best markets, and much of the world should look to Australia for a similar model. But in too many places, small investors in their 20s aren’t getting any advice,” she said.
According to Johnson, young ‘do-it-yourself’ investors who couldn’t access advice typically got burnt by volatile markets and didn’t end up wanting to come back, which was an area where advisers could act as a line of defence for them.
“The average person will buy high and sell low; there are tons of studies on that,” she observed.
“That experience is a real problem for investors. While in theory, isn’t it great to say, ‘No, people will fight that,’ but it’s not true. It’s emotional. What a financial adviser does is, in those most difficult times, they keep a person invested and say, ‘Don’t look at it today, just stay in’.”
She also emphasised the importance of savings in the first 10 years of adulthood towards setting up for retirement and how advisers could help them with this.
“If you save, say, $5,000 a year and earn a 7 per cent return from age 20 to 30, you will have more money at the end than somebody who starts at 30 and saves $5,000 for 30 years. The first 10 years of savings when you turn 20 are so important to retirement,” she said.
It was one of the reasons that the experienced investment executive, who became CEO in February 2020 and had been with Franklin Templeton since 1988, saw the crucial role of advisers in setting up a future generation.
“The beauty of a financial adviser is they’re at the tip of the spear. They understand an individual’s debt. They understand the family spending. They understand the family dynamics. There’s no way you can deliver if you’re not close to that end investor.”
AUTHOR
Rhea Nath
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