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Adviser remuneration should not be regulated by government, nor should commission-based payments be dismissed as inherently bad, a financial planner has argued.
In a submission to the parliamentary joint committee inquiry into financial products and services, Paramount Wealth Management co-principal Wayne Leggett said the issue surrounding commissions is how they are being handled rather than the form of payment itself.
“No one would question the potential for commission to influence a recommendation,” Leggett said.
“That said, it is not the payment of commission for financial products that is inherently bad, any more than it is for real estate, loans, cars or white goods.”
Leggett argued that even the amount of commission should not be of concern to the inquiry. “A lot of attention has been focused on high upfront commission as being, effectively, unfair,” Leggett said.
“The cost of a service is a commercial arrangement between the provider of the service and the recipient and should not, in a free enterprise environment, become the province of government regulation.”
Leggett recommended the implementation of measures to prevent remuneration being paid to a planner where the payment is deducted from client funds without the client’s prior written consent.
“This would address the issue of clients paying commission from products, notably superannuation, without neither having authorised the payment, nor received any form of service for said payment.”
In his comments to the inquiry, Leggett also argued that payment for adviser service fees through commissions is more economical and tax effective than invoiced fees, adding that it is also easier for financial planning firms to be compensated by a financial product provider.
Leggett noted that without commission-based payments, many financial products such as risk insurance would be difficult to sell.
“It is difficult enough to get clients to take up appropriate levels of insurance without asking them to pay non tax-deductible financial planning fees on top of the premiums,” he said.
