-
Get the latest news! Subscribe to the ifa bulletin
Powered by
MOMENTUM
MEDIA
Get the latest news! Subscribe to the ifa bulletin
A major financial advisory firm has backed the removal of grandfathered commissions on financial products but has said it is the responsibility of the product providers to remove them.
QInvest, the advisory arm of super fund QSuper, has told the federal government that the removal of grandfathered commissions could decrease the risk of conflicted advice.
It would also align the interests of financial advisers more closely with their clients, the firm said.
QInvest told the Financial Services Reform Implementation Taskforce that it already removes or rebates where possible conflicted remuneration received from product providers.
Its statement was in response to proposed legislation that will require grandfathered commissions to be repaid as conflicted remuneration to retail investors from 2021.
The Future of Financial Advice legislation has stopped commissions on new investment products since 2013 but allowed advisers to be paid under existing arrangements.
However, the Hayne royal commission determined this represented a conflict of interest and draft legislation has proposed that both product providers and financial advisers should be responsible for rebating the commission after 2021.
Chief of QInvest Kim Hughes told the taskforce that responsibility should fall on the product providers and not both parties.
“QInvest believes the overlapping in responsibilities could cause confusion, inefficiency and overhead costs in the administration of the rebate,” she said.
“In addition, having dual parties may lead to confusion, for all parties (including clients), regarding responsibility if a breach occurs.”
Product providers were better suited as well due to them being more likely than advisers to be in continuing client contact, said Ms Hughes.
“This would be a better outcome for clients. It will be more convenient, more transparent and put rebates directly into their bank accounts,” she said.
“The reform will not only financially benefit clients but may improve transparency and confidence in investments.”
Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms.
Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.
Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).
You can email him on: eliot.hastie@momentummedia.com.au
Never miss the stories that impact the industry.
Get the latest news! Subscribe to the ifa bulletin
Comments (5)
"The removal of grandfathered commissions COULD decrease the risk of conflicted advice." - sure, working for free COULD reduce conflict of interest.
But generally speaking, all remuneration is potentially conflicted in some way. The professional services providers who charge an hourly rate may be inclined to take their time, complicate and and drag out the process in order to increase billable hours. Those who charge a fixed fee may be inclined to cut corners to reduce their time and costs. Media may be inclined to bend the truth and sensationalize in order to get more clicks / views etc. Financial advisers who stand to gain from banning of commissions may make bold statements for publicity. A mechanic may charge you for a full service which was never carried out. Government officials may take a helicopter ride instead of any other means of transport because they don't have to pay for it. There are crooks hiding in every industry. Look hard enough and you will find them.
The standard commission rates across the board does help level the playing field. Doesn't matter if I recommend insurer A or insurer B, the rate is the same. I can recommend the cheaper one or the more expensive one, but I am still required to justify my recommendations - compliance and the threat of lawsuits strongly incentivises that now. The higher upfront commission helps justify the amount of time, research and compliance required to on-board a new client. The trail helps me keep my doors open, recoup losses on cases where very little commission was earned, allows me to spend time helping clients with admin, reviews and claims. We’re not going to charge a flat fee or a percentage to help a client fill out a claim form. There are no more volume bonuses, kick-backs, junkets, gifts etc. Those days are gone.
Are we getting a free lunch with commissions? Maybe. If we've spent years working hard to build up a book of clients and then decide to just stop looking after them. Maybe. But like I said, there are crooks in every industry if you look hard enough. Clever people who have the money to make investments that generate on-going income and capital growth may also be having a free lunch. People who are exploiting the poor and underprivileged are having a free lunch. Whatever. Politicians who owe millions of dollars to their workers but can still get elected? That's taking somebody else's lunch and eating your own too.
My recent experience is it is bloody hard work to on-board a client these days. I earn my commission.
So if commissions are actually banned, what conflicts will be removed and how will it improve the situation for clients? Insurers will keep the commission for themselves. Clients will have to call that 1300 number if they need anything. Sometimes you get the right answer, sometimes you don't. Sometimes you're just on hold forever. Also harder for a client to know if they've been given the run around if they don't know what questions to ask. Maybe I'll go work as a tied agent with just one of the insurers. Then I will only recommend one product, which will be great because I don't have to discuss the differences between this policy and that policy anymore. Caveat Emptor. I'll get paid a salary regardless of how much business I write, and a bonus if I write lots of business. No commission, no conflict right?
OK QSuper, lets have some stats on how many other super funds get advised on and recommedned by your Vertically Integrated Advisers.
Talk about Conflicted Advice.
OK QSuper, lets have some stats on how many other super funds get advised on and recommedned by your Vertically Integrated Advisers.
Talk about Conflicted Advice.
Great comment. While we are at it, lets see where those stats say that reasonable basis hasnt been met? And compare these to a dealer group adviser who makes their living out of switching people's products into their apl ones (i know they have 100s of investment options so they are pretty awesome).
OK QSuper, lets have some stats on how many other super funds get advised on and recommedned by your Vertically Integrated Advisers.
Talk about Conflicted Advice.