RetireInvest joins fee-for-service upsurge

Pure commission-based selling of financial advice or biased buyer of last resort practices are being rapidly dismantled as the Financial Planning Association puts the finishing touches on its long awaited Code of Practice on conflicts of interest.

As previously reported in Money Management, large institutional dealer groups AXA, ANZFP and MLC have already made changes to their remuneration policies.

And now, in what is being perceived as another sign of a watershed for the fee-for-service mode of adviser remuneration, dealer group RetireInvest has begun weaning its planners off commission-based payments.

RetireInvest managing director George Haramis said a fifth of the group’s over 200 planners had already taken up its new fee-for-service model, with the rest to follow suit throughout 2006.

Like the ANZFP model, planners will charge the client an initial up-front implementation fee followed by fees for ongoing services, rather than simply collecting commissions from a chosen investment product.

“The bottom line is that the advice being given is what is being charged for, not the product. So the base case scenario is that we rebate all commissions and we charge a fee for the plan and a fee for the implementation.”

Ongoing fees for the plan have been split into three levels, with fees increasing with the amount of money invested and the complexity of the client’s financial plan.

Dialling down trail commissions and charging an adviser service fee will not be mandatory. Like ANZFP’s model, clients with smaller amounts to invest will still be allowed to request commission-based payments to make the advice more affordable.

The changes at the ING-owned group were instituted as part of its ongoing Next Level Journey Program, which is also examining practice management issues such as platform use and customer offerings.

“By the time I complete the transition of all clients, my recurring revenue will have increased by 70 per cent and my overall revenue will be up by 40 per cent,” said RetireInvest Sutherland proprietor Paul Fogdon.

Haramis said significant revenue rises at the practices could partly be attributed to the adoption of the fee-for-advice model.

Centric Wealth chief investment officer and long-time proponent of a pure fee-for-service model Robert Keavney welcomed the changes at RetireInvest and ANZFP.

“Thank god at last. That’s my first comment,” Keavney said. “Both of the organisations which formed Centric Wealth have been doing fee-for-service for over 15 years, so they’re late for the party, but I’m glad they’re coming.

“In principle, I can’t see why an organisation of any size can’t go to fee-for-service.

“It’s a no brainer. A client comes in, you’re going to get an up-front commission for the work you’re going to do. So why not come up with an estimate for what’s a reasonable fee — maybe based on the average commission pulled in the last year. Even if it’s in the ballpark of what the commission would be, disclose and rebate the commission so you don’t make more money from one product than another.”