OUR BLOG
The Commission Debate - Part 1
Wednesday, August 11, 2010
Over the past years Financial Advisers have come under much scrutiny for the way we get paid. I have been in the Industry for over 8 years now and I have previously worked for companies that charge and collect fees in various different ways.
I have spoken to many colleagues over this time and there seems to be a concern amongst many advisers, particularly those who have been in the industry for some time (even dating back to the old Life Agent days) that their business is being stripped away by this decision remove all commissions from Investment and Superannuation products. I think we need to be careful here and acknowledge that there are advisers who do take commissions and they are providing sound advice to their clients.
Don't get me wrong, I am not ignorant to the fact that there are still advisers out there doing the wrong thing, but there are also plenty of other professionals like Real Estate Agents, Accountants and Solicitors doing the wrong thing by their clients at times. We are not alone there.
I do not believe the issue here is how we get paid; it is transparency as to how we get paid and improving financial literacy. All fees and commissions must currently be disclosed inside an advice document in writing to the client. If an adviser recommends a product where they are paid 3% upfront commission upon placing an investment, as a consumer I would like to know why this product and what other options are there? Whether clients are aware or not there is actually a section in the advice document which should explain the adviser's rationale behind product selection. It is our responsibility to explain this rationale to you which I believe is currently not being done very well and this is where the issue starts. It would be interesting to see how Storm Financial justified their recommendations.
One positive thing that has come out of this whole debate over commissions is that it has created differentiation in the market, where consumers have more choice. If a consumer is not comfortable with the way an adviser is remunerated and they feel this may cause a conflict of interest in the advice process, there are plenty of advisers out there, me being one, who do not take commissions on Super and Investment products.
So what about the future? I think a few things need to happen moving forward.
- The Financial Planning Association (FPA) and the Government need to spend more money on improving financial literacy and awareness amongst Australians, getting them to understand the value of advice and that you have to pay for good advice.
- Upfront Financial Planning advice fees need to be 100% tax deductible. This may encourage people to seek a plan from more than adviser if the fees incurred are 100% tax deductible.
For Lifepath Advisers, it is business as usual as we are not really affected by the removal of commissions on Super and Investment products. I see this as an opportunity for our Industry to really focus on the strategy which I believe makes the big difference for people in the end, not the product.
