Since the earliest days of the financial planning industry, fund managers have treated financial planners to all manners of luxury.
Their corporate largesse has ranged from the relatively innocuous practice of BDMs being told to shout drinks at late night conference functions to the more insidious phone call to the fund manager demanding tickets to international sporting events in exchange for the investment dollars of a high net worth client.
In fact, fund managers bankroll almost all industry and professional activities of financial advisers. They are the primary sponsors for almost every dealer group and industry conference; they pay a large proportion of the revenue of industry associations; they reward the planners who pour the most money into their coffers with luxurious overseas holidays; and they are hit up by financial planners often to foot the bill for everything from software to school fees.
Privately, most fund managers talk of the extent of their own largesse with a sense of distaste. Sure, like almost any business, they want to reward their best clients and thank them for their loyalty. But the magnitude of the handouts and the “give me” culture of financial planners is testing their patience.
Fund managers are being battered from all sides. Financial planners, superannuation consultants and investors are constantly complaining about the high level of management fees. At the same time, financial planners are almost constantly hitting them up to subsidise their golf games, conferences and overseas jaunts. These “subsidies” generally come out of the marketing budget which forms a significant part of management expense ratios (MERs).
The problem for fund managers is that if one fund manager stops bankrolling junkets for financial planners, then they are at a competitive disadvantage to other fund managers in the distribution channel that makes up more than 90 per cent of their retail business. It would be a brave funds management executive who would risk disturbing the gravy train status quo.
On the other hand, if the funds management industry sits down together and decides to collectively reduce the amount spent on largesse, then the competition watchdog could accuse them of collusion.
But there appears to be changes afoot. There is a general feeling among fund managers that their generosity is being pushed too far. At the moment, some are tightening their belts on the extent to which they subsidise conferences
It is highly unlikely that soft dollar commissions will ever disappear. What may happen over the next few years is that consumer pressure forces financial planners to really disclose all the extra incentives they are given to recommend products.
If that happens, then the parasitic culture that pervades many corners of the financial planning industry may subside. That will be a good day for everyone involved in the industry.
