Banks doubt viability of firms in post-commission environment

Some banks that provide loans to financial planning businesses are beginning to question the value of financial advice firms that drive business off superannuation investments.

The national manager of financial planner banking at the National Australia Bank (NAB), Malcolm Arnold, told Money Management that the Government inquiries into superannuation and the likelihood of the regulator moving to restrict commissions was raising questions as to the long-term sustainability of a practice that drove its business off of corporate superannuation.

Arnold said one of the issues NAB was looking at was whether “businesses that are driving a lot of revenue off of superannuation investments are going to have the same value in a few years’ time, because it’s highly likely that the regulators might move quickly to restrict financial planner revenue streams”.

Arnold drew attention to planners earning revenue off super guarantee payments, saying that was a particular issue for the bank, while adding that planners who earned money off general super investments also carried some risks.

Chris Wrightson, director of Centurion Market Makers, said if the Government removed commissions on super contributions or asset-based commission trails, it would have a major impact on financial planning firms that hold corporate super accounts.

“The whole fees and commissions debate and where legislative change might take you gives you cause to think that [model] might not be sustainable,” he said.

While many of the people were of the view that the Government would remove future trailing commissions on super, “it’s all swinging on where legislation lands, I guess”.

Financial planning firms would have to set a fee for the servicing of a corporate super account to counter the impact, Wrightson said.

The realignment and work that a lot of corporate super businesses would have to go through in that situation would also have quite a detrimental effect on the retail corporate super market, he added.

However, Australian Institute of Superannuation Trustees (AIST) chief executive Fiona Reynolds said the industry was preparing to move away from commissions even without any government initiatives in the space, and the move would not affect financial planners’ businesses.

The Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) have already stated their intentions to move away from commissions, Reynolds said.

“While the FPA and IFSA haven’t talked about completely removing commissions from the corporate super space, I think the fact of the matter is, people are always going to need advice, and as [super] account balances grow, there’s going to be more and more need for financial planners.”

Planners already recognised that their business models needed to change and were beginning to transition their businesses to a fee-for-service model, and that change will only accelerate, she said.