The Commonwealth Bank (CBA) has backed the retention of dealer group rebates, claiming they actually drive down the cost of advice to consumers.
In a submission to the second phase of the Cooper Review, the CBA has also argued that the Government should embrace a self-regulatory approach to the phasing out of commissions in the financial planning industry, consistent with the strategies outlined by the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA).
“We support self-regulation as a means to removing commissions and separating product and advice fees,” the submission said. “The Government should endorse the self-regulatory mechanisms currently in the process of being adopted by industry (through IFSA and the FPA).”
However, it added “any self-regulatory or other mechanism should not extend to other subsidies, such as dealer group rebates, which lower the cost of advice and increase access to advice”.
The CBA submission argued that “payments made from product manufacturers to financial advisers, including commissions, are best characterised as economic subsidies which exist to support access to financial advice or the provision of services by funds to their members”.
It said such economic subsidies took many forms and were present in most types of product/adviser relationships, including retail investment and superannuation markets and the industry and public sector superannuation fund markets.
The submission said the payment might include:
- other types of payments from product manufacturers to either independent or aligned advisers (e.g, volume based rebates);
- salaries paid to advisers employed by product manufacturers, including superannuation fund providers paying salaries from fund assets;
- ownership of adviser dealer groups by product manufacturers or superannuation funds or their associates; and
- payments from fund managers to superannuation funds.
“In relation to the first type of payment mentioned above, where a payment is made from a product manufacturer to an adviser or their licensee, these payments are legitimate wholesale discounts which subsidise the cost of advice,” the submission said. “This increases access to advice through supporting the costs of the infrastructure and services necessary to deliver the advice.”
It said in many cases this infrastructure represented a sophisticated support framework that included compliance resources and monitoring, training and professional development functions, product control mechanisms and research, technical support and access to technological efficiencies.
The submission said similarly, in the case of a fund manager making payments to superannuation funds, these payments might be used to subsidise the cost of advertising, marketing and sponsorships, education and other services such as advice provided to members.
“In all the cases mentioned above, the presence of these subsidies provides net benefits to consumers by enabling the provision of cost effective advice and other services to fund members,” it said.
