Incentives speaking louder than returns
Equity manager PM Capital has called for a regulatory ban of all payments from fund managers to financial planners, dealer groups and investment research houses.
In a submission to the Ripoll inquiry, the group said it wants the Australian Securities and Investments Commission to ban commission-based remuneration to financial advisers as well as all incentive-based remuneration from fund managers and product providers to ratings agencies and financial planning dealer groups.
PM Capital chairman and chief investment officer Paul Moore said “the system whereby fund managers reward financial planners for using their products in preference to those of competitors” must be removed.
Despite much commentary and discussion on the topic, PM Capital said the “industry is still faced with the reality that many investors are being directed into inappropriate investment vehicles as a result of incentives handed out by product providers”.
“The conflict of interest created by this form of remuneration has caused, and will continue to cause, unacceptable behavioural outcomes by those licensed to provide financial advice, unless strong and irrefutable regulatory action is taken to stop it,” PM Capital’s submission states.
“As a nation with in excess of $1 trillion invested in superannuation, we cannot allow kickbacks to cloud the decision making of those responsible for its allocation to investment products.”
The group said the majority of the $1.5 billion of funds it manages is sourced from financial planners. The group said it had found it difficult to compete in the industry “purely on the basis of the investment merits of our product suite”.
“It has progressively become more important to provide incentives, such as fee rebates, to financial planning groups in order to have our products available for clients to invest in.”
The submission argued “self regulation by advisory groups and the Financial Planning Association has not been and is unlikely to be effective in the presence of significant financial vested interests”.
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