Risk products that don’t pay commissions — you’ve got to be joking.
Refunding trail commissions — too hard.
These are two of the most common refrains heard around the industry since the fees versus commission debate fizzled in the middle of the 1990s. But it seems the issue could be once again bubbling to the surface.
Two separate services were launched last week that aim to rid financial planning of commissions.
Permanent Trustee’s private client division has struck a deal with Colonial to deliver life insurance products to their clients without any up-front or trailing commissions. Permanent is in discussions with other life insurance companies to provide a similar deal to offer choice to its clients.
Permanent Private Clients senior manager Luke McGrath says Permanent provides all financial planning tools, such as share trading, risk products and managed funds, at cost price while charging either hourly or portfolio fees.
While Permanent is making waves with life insurance commissions, Robert Keavney’s Investor Security Group (ISG) has just started refunding trail commissions to its clients. ISG teamed up with its 50 per cent owners, Perpetual Trustees, to design a system which debits the trailing commission of the fees paid to ISG planners.
Keavney says is rebating trail commissions because he believes the present system of remuneration for advisers is unsustainable.
“When I started in the financial planning industry, fund managers were paying up-fronts of 8 per cent,” he says.
“These proved to be unsustainable – up-front commissions are now verging on extinction. In the same way, I think the present high levels of trail commission will prove to be unsustainable.”
ISG’s new service aims to unbundle the three elements of financial planning, advice, administration and asset management. Clients will know exactly what they are being charged for each element, Keavney says.
Are these developments a sign that Australia may follow the battle raging in the US over fees and commissions?
Financial Planning Association acting chief executive Ken Breakspear doesn’t think so. Rather, he says adviser remuneration in Australia is undergoing evolution not revolution.
“I don’t see a major shift in the market,” he says. “However, what we are seeing is a trend towards offering clients a choice in the way they pay their advisers – flat fee, hourly fee or commission.”
“The FPA has never dictated to its members which method of remuneration they should use, we believe the market will determine what is best in the end.”
In the US, a number of the bigger financial planning firms are marketing fee only planners to clients while there has also been an association set up for fee-only advisers.
