TAP warning for advisers

Advisers who use term allocated pensions (TAPs) have been warned they may be putting themselves in the firing line of future litigation because of the higher commissions available for selling TAPs over annuities.

Although trail commissions are paid on most annuity products, many product providers, such as AXA and ING, pay trails up to 50 per cent higher on TAPs. Some pay no trails on annuities at all.

According to leading financial planning lawyer and Argyle Partnership partner Peter Bobbin, this discrepancy represents a potential remuneration bias for planners when choosing between an annuity and a TAP for clients.

“Just say a person in a TAP happens to make a load of bad investment choices. They could use the fact that you [ the planner] don’t get trail on a complying annuity as part of their argument for saying that you didn’t act in their best interest,” he said.

Bobbin said to get around the problem, planners needed to go above the requirements of the Australian Securities and Investments Commission (ASIC) regulations and disclose to clients the discrepancy in commissions they may be receiving.

As a requirement of ASIC’s PS 181 regulations, which will come into effect on January 1, 2005, planners are required to justify in statements of advice their reasoning for recommending a particular product and disclose any remuneration attached to that product. However, they will not have to compare different products or commissions.

But MLC head of financial planning and third part distribution Matt Lawler rejected the criticism. He said the concept of advisers receiving different commissions for selling different products is nothing new.

A spokesperson from AMP said he did not think it necessary for planners to compare trails in front of clients.

“Most importantly they should make sure that advice is appropriate to the person’s needs and they must disclose how much they get paid. Otherwise they should be run out of town,” he said.