Hourly fees will deprive many of advice: PIS

The managing director of Australia’s largest dealer group, Professional Investment Services, has come out in support of the Financial Planning Association’s (FPA) guidance paper on the phasing out of commission payments to financial advisers, while at the same time questioning an hourly rate payment model.

PIS group managing director Grahame Evans said PIS “wholeheartedly” welcomes the FPA’s movement on the commissions issue, however, he believes the debate must include more than just the issues “that certain sectors have a prejudice for”.

Evans has questioned the economics of an hourly fee model for financial planning advice.

“The ‘hourly fee’ proponents need to take a long, hard look at the economics of their suggestions, because changing everything to an hourly fee basis will see the cost of advice moving beyond the reach of many clients,” Evans said.

The current model, which sees those with larger superannuation balances predominantly subsidise those with smaller balances “makes it reasonable from a cost perspective to obtain advice and service for all”.

He believes it is vital the industry does not become “caught up in a mere political debate where judgments are clouded by vested interests”, but rather focuses on how it can “better serve clients and make quality advice accessible to all”.

Evans said many “so called industry stalwarts and main players” fail to listen to research provided by “the people that count” — that is, the clients — as a result of their own self interest.

Evans believes there is evidence that the “fee commission issue” is of no interest to “the majority of investors”. Instead, it exists “only in the minds of those who can see some personal or business advantage in propagating [it]”.

Evans questioned who is driving the issue of fees and commissions.

“Choice is significant for an investor, so whose issue is this really?”

Evans said clients are more concerned about “having a trusted relationship and receiving quality advice”.

He also believes that “most advisers will act in the best interests of their clients”, regardless of whether they are remunerated through fees or commissions, despite the existence of a few “bad eggs”.

Evans urged the industry to “work with the facts”.

“Have a look at the recent demise of financial advice businesses and whether they charged fee or commission. Understand the real circumstances,” he said.

Evans would like to see the issue of remuneration for advice on superannuation balances separated into two camps, one for mandated superannuation guarantee contributions and one for other advice.

“Mandated contributions into a default fund for SG contributions is a completely different issue and does require review, but let’s not confuse the two issues,” he said.

Evans said the debate must seek to hear the voices of the “silent majority instead of the noisy minority”, and that the dealer group looks forward to “a healthy but factual debate to provide a better overall proposition for the majority of investors”.