Investors in retail fund products should be given the right to turn off a trail payment if they feel they are not receiving any service from their nominated adviser, according to Brett Walker, managing director of Queensland-based adviser training firm Smart compliance.
Walker, who effectively trains advisers to enter the industry as licensees, said he was advocating this right because of the fact there is often a trail paid but no reciprocal service obligation.
He said recent studies have revealed there are “hundreds of millions of dollars” in trails paid every year to advisers by retail product issuers where there has been no reciprocal service obligation.
“This begs the question of why trails should be paid to a financial adviser if the trail is not linked to client service.”
However, Walker acknowledged this would be effective only with the co-operation of product issuers, as trail commissions are obviously a remuneration that flows directly from the product issuers.
“There have been instances in the past where product issuers have said, ‘We’ll happily get rid of the trail’, but insisted on keeping that money, which, from a clients point of view, is no different from having the trail paid to their adviser.”
Walker said he has clients who have previously approached products issuers to try to turn some previous trail commissions off in order to embrace a true independent advice model, only to be told the product issuers don’t have the systems to do that.
“It’s a big ask to then request an adviser go to the bother of creating systems to reconcile trails and allocate those to investors, although I know several who have tried and failed given the technology difference between a planner and an institutional product issuer.”
He said as consumers become more aware and the Government puts more pressure on the industry, advisers are going to be put increasingly under the pump over trails being paid.
“The facts show that there are a number of trails that provide planners with a certain income based simply on the fact that a product issuer keeps paying a trail.”
