Giving the public an eyeful

It is becoming increasingly obvious that irrespective of the initiatives flagged by the Financial Planning Association, the Australian financial services indus try is going to have to review and clean up its act with respect to fees, charges and commissions.

The collapse of Timbercorp and Great Southern has served to give consumers and politicians a glimpse of the commer cial arrangements that existed between the purveyors of managed investment schemes and a number of dealer groups. That glimpse has been quite revealing and for some it has also been disturbing.

While much of the debate over remu neration has focused on planners and the question of fee-for-service versus commissions, not enough light has been cast on the various payments to dealer groups from product providers.

Former Money Management Finan cial Planner of the Year Neil Kendall has used a submission to a Parliamentary inquiry to call for the banning of plat form rebates to licensees and advisers, describing them as “secret commissions” and payments “disclosed in such an obscure manner as to be completely unintelligible to most consumers”.

His submission stated that while many licensees argued the rebates did not need to be disclosed because they were “not paid to the adviser but to the licensee”, they nonetheless had a major influence on investment dollar flows.

Kendall is right and much of the evi dence that will confirm his belief is already flowing from the processes sur rounding the liquidation of companies such as Great Southern.

While the cognicenti of the indus try may understand the mechanisms that make up a dealer group, the average client does not. Further, most clients would be disturbed to learn that hundreds of thousands of dol lars are being paid by product providers to the organisations that develop approved product lists.

Consumers would be equally con cerned if they learned that dealer groups or dealer group principals held share holdings in certain product providers.

It does not matter that these arrange ments do not breach the law. It is a ques tion of perceptions.

The issue is also proof that the chal lenges confronting financial planning extend well beyond how individual plan ners are ultimately remunerated.

— Mike Taylor