Stripping commissions could cut 50 per cent off client product costs
|
|
Stripping commissions from the cost of financial products could result in falls of up to 50 per cent in their cost to clients, according to David Price, managing director of Strategy First Financial Planning.
Price said falls of this size were feasible if clients "no longer had to subsidise commissions and third-party payments" to advisers on products such as managed funds, retail super funds and life insurance.
"It’s one of numerous rewards of an industry-wide fee based model, which would in turn help to avoid future disasters such as the collapses of Storm Financial, Westpoint and Timbercorp."
Price said Strategy First rebates 100 per cent of the commissions on insurance sales to clients in accordance with its fee-for-service policy, and this currently amounts to a 30 per cent reduction for clients on their annual premium for the life of the policy.
He said, however, that commissions on these products “ranged from 30 to 35 per cent for flat structures, 65 per cent for hybrid structures in year one and 25 per cent every year thereafter".
"Upfront commissions can be as high as 110 per cent."
In relation to commissions for retail managed funds, Price said trails are up to 0.44 per cent per annum, while also giving the adviser the ability to increase this amount further.
“If you look at the total cost of the average retail managed fund of 2 to 2.5 per cent, the total cost associated with commissions (paying, administering and reporting) can account for up to 50 per cent of the total cost borne by the retail investor.”
In the case of wrap platforms and volume rebates, he said the rebate paid to the dealer groups is more than 75 per cent of the fee paid by the client for the administration and reporting provided by the wrap platform.
Recommended for you
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
