The Boutique Financial Planning Principals Group (BFPPG) has urged the Parliamentary Joint Committee reviewing the Future of Financial Advice bills to support the complementary banning of all volume payments and cross subsidies from institutions to their financial advice arms.
In a submission lodged with the parliamentary committee late last month, the BFPPG said it was imperative that the "the two very separate activities of (a) product manufacture (or ownership) and distribution and (b) the provision of advice, must be kept apart".
"A ban on volume rebates alone will not be effective and we have already seen larger dealer groups moving to protect their revenue base by becoming their own Responsible Entity and recommending their own products to retain the income that they would have received from volume rebates and that will now be banned," the submission said.
It said that while the BFPPG recognised that there are arrangements where large dealer groups generate a significant income stream from rebates and volume bonuses, "the effect of this has been to largely negate any pressure to reduce platform fees paid by clients".
The submission said platforms had been part of the financial planning landscape for 12 years but their fees had remained largely unchanged.
"The BFPPG believes that platform fees are inflated and rebates and bonuses based on volume effectively remove the incentive to reduce fees," it said.
The submission said that while it could be argued that the BFPPG was opposed to volume rebates because its members are small AFSLs and, individually, unable to generate sufficiently large volumes to earn rebates, it was more relevant to argue that the clients of small AFSLs should not be cross-subsidising larger dealers, just as the members of superannuation funds should not be cross subsidising the provision of inhouse financial advice to other members.
"The BFPPG strongly believes that financial advice must be in the client's best interest and distortions to remuneration that misalign the interests of the client and the financial planner are to be avoided," it said.
However the BFPPG submission argued that the Government should allow a sufficient period of grace to allow those who receive volume rebates to restructure.
