Sadly, ‘soft’ skeletons are still rattling in the closet
This edition of Money Management is dominated by the evolving business of portfolio administration services.
It seems everybody is getting in on the act of launching a wrap account, or talking about it. Such is the intensity of discussion, Money Management is reminded of the great master trust debates, circa 1993.
The question now, as was then, is: what's all the fuss about?
Like master trusts, wrap accounts are simply a sophisticated cog in the process of managing back office administration. They will continue to evolve as the industry matures.
But while wrap accounts have captured the recent attention of the industry, Money Management believes the real sleeper lies in another throwback to the past.
The disturbing rise of soft dollar commission practices.
And this week's release of some of the detail surrounding the CLERP 6 reforms may well be the catalyst to bring this issue to the fore.
Amongst other items on the CLERP 6 agenda, disclosure of commissions will be back on the agenda.
The timing is good. Money Management has learnt of some recent incidents which suggest the worst days of soft commissions have returned.
One story relates of an adviser who negotiated the placement of funds with a certain fund manager on the basis of guaranteed tickets to the Melbourne Formula One Grand Prix.
There has also been a lot of talk recently of fund managers agreeing to pay school fees on behalf of advisers in return for favourable treatment.
According to our sources, some of advisers in question are financial planners who have been operating under disclosure rules identical to those proposed by the CLERP 6 reforms.
Perhaps the point is that you simply cannot legislate to curb the practice of soft commissions or kickbacks. The only way you can wipe out what is essentially a corrupt business practice is to expose those who continue to take advantage of the present system.
What is missing is not more legislation but a real commitment by the financial services industry working with ASIC to try to stamp out these practices.
For its part, ASIC should provide a confidential forum where whistleblowers can expose advisers who are accepting soft commissions or expose fund managers who are offering such "incentives".
The peak industry associations, like the FPA, must also do their bit to throw open the doors on these secretive practices.
AUTHOR
Nicholas Brookes
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