Call for compulsory annual reporting on adviser trails

15 November 2018

Superannuation funds should be required by law to inform members if they are being subjected to the payment of trailing commissions to financial advisers, according to the nation’s largest industry superannuation fund, AustralianSuper.

The big fund also wants grandfathered commissions to be banned.

The fund has used a submission to the Productivity Commission to back the proposition that the “the Australian Government should require superannuation funds to clearly inform, on an annual basis, all members who are subject to trailing financial adviser commissions”.

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At the same time as the future of grandfathered commissions come under scrutiny as a result of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, AustralianSuper said it “supports any proposal that seeks to make it clear to members that they are paying trailing commissions to a financial adviser”.

“AustralianSuper suggests that this may not be sufficient to protect members, particularly those in cognitive decline who continue to pay a trailing commission,” the submission said. “Also, this does not address the issue of what action a member may initiate if they do not want to pay trail commissions anymore.”

“AustralianSuper supports appropriate legislative measures that would ban grandfathered trailing commissions.”

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I call on AustralianSuper to immediately cease taking commissions or other forms of volume related profits from insurance premiums, most of which is ripped from member accounts without the members permission; unless every cent of that money is credited back to the member who holds the insurance cover via reduced premiums. Using these commissions/profits to cross-subsidise their financial planners, fund political advertising, pay for corporate boxes or other staff benefits is not acceptable for a fund which claims to be not-for-profit. Where is ASIC, the ACCC or Hayne on this? Maybe the media could step up for once and call them out.

I good extract what maybe about to happen

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Yes ISA funds Must disclose all the secret commissions they receive and also and especially what they do with tax refunds on Franking Credits. My understanding is that tax refunds are used to help defray Admin Costs across the whole fund. They are NOR CREDITED to the accounts of those who took the risks of investing in Shares. Isn't this MISAPPORPRIATION OF MEMBERS DUE MONIES?
What's wrong with the QCs and SCs who assisted Com. Hayne that they were blind to these issues which cost the MEMBERS OF ISA FUNDS HUGE VOLUMES OF DOLLARS EVERY DAY? But the same inquisitors had plenty of time to cross examine some poor workers about the minutiae of the operations of NON ISA FUNDS

The exhibits used by the Royal Commission as evidence of bad behavior by AMP and the Banks is information that has been gathered over time by ASIC audits. Peter Kell was asked during a Productivity Commission a few months ago if ASIC has ever audited Industry Super Funds. His answer was NO! That is the reason why the Royal Commission did not question the Industry Super Funds to anywhere near the same level of scrutiny. It seems obvious that Industry Super Funds are protected by the regulator.

Was it a coincidence that Peter Kell prior to joining ASIC was Exec Director of Choice, the most biased Consumer action Group in Australia. A check of their product reports over time show massive Left Wing biases including towards environmental issues, emphasis on testing cheap goods instead of high quality, well designed products which Choice would not encourage people to buy because Choice determines that people cannot afford them, or that they are too luxurious. Typical Left Wing Censorship. And this man attempted to be "fair" to all in the Financial Services Industry, except the Industry Funds which were treated in a non critical manner, and NOT AUDITED! Now that Kell has departed its time for ASIC the home in on the Industry Funds who hold property for years without revaluations, don't credit Members Accounts with Franking Tax Credits, do make donations to a political party, pay Trustees for appearances at Meetings, take undisclosed Commissions from insurers, boast of high returns when they do not use valid evaluation methods, pay Super Information Officers for harassing Employers and workers, inaccurately describe Funds as "BALANCED" when very high proportions of Growth investments are used exceeding normal values, invest in the building of office blocks so that Unionists can be paid in excess of normal rates (e.g. C-BUS and No1 Bligh St, SYDNEY) etc. etc.

I am an adviser whose business receives trailing commissions. I would go one further than AustralianSuper is proposing.

Each annual statement should include a note of the full amount paid to an adviser/AFSL, as well as details of how to opt-out of this payment. The notice should include an ASIC approved statement to confirm that the client will now need to contact the institution customer service lines for future assistance with that particular account, and that the adviser will no longer be noted for access to information on the account, as well as confirming that any further contact with an adviser will need to be negotiated anew.

Our business has clients going back 40+ years. I doubt that many advisers would even know about some of the accounts held, and I very much doubt that most institution's customer service staff would either.

In 2003, we contacted all clients and split our business into explicit fee-paying/ commission, with a choice for clients to change to the alternative model. We have continued to provide the relationship inherent in the commission model - that is, to be available as the contact-point for people to find out and make changes to their account. This simple model is the basis of commissions - it was put in place by institutions because it allowed them to take fixed costs of rent/wages/on-costs, and to convert those costs to a fixed percentage of sales income. Again, this is a fact lost on most people today, as well as a fact virtually ignored in the Royal Commission.

Banning trailing commissions is breaking contracts. It is pushing people with old account towards customer service centres, and making them pay for advice at $220 an hour or whatever rate is availalbe. It ignores business models established under clear terms.

Informed Consent is what should be discussed here. The institutions are easily able to provide the information about trailing commissions. Informing clients and reminding them of their options and the implications is just common sense. It also allows people to make decisions under fair terms.

Well said Michael. Did very similar here and have many satisfied clients happily paying for services as needed, funded by commissions. A model that they and we are happy with. It's all about being transparent. Oh... having a relationship with your client built on trust and mutual respect too. Does anyone ever mention that?

I'm getting sick of the grandstanding of these funds. Retail funds have been including adviser fees in their statements for years now. Trying to imply that these fees are hidden is just another attempt to undermine our profession.

ASIC can also include in this report the annual academic unit fee costs (now to be completed under FASEA), the massive annual Professional Indemnity Insurance paid, the annual IT costs to keep all of the records according to ASIC's standards, in addition to the annual administrative cost of generating Fee Disclosure Statements & Opt In notifications - none of which is actually providing increased services to our clientele. You will note that in many cases these servicing fees are now less than costs imposed by Govt legislation. IF the Unions were smart, they would actually embrace the advisers, rather than burn them off. The real issue here that the union super funds are entrenching a monopoly relationship which will ultimately see fund members costs increase. Read the new book "The Myth of Capitalism" to see plenty of modern day examples of this.

The "snouts in the trough" are squealing

What is your definition of someone with their snout in the trough? And I mean an exact definition?

Hi John. I'm one of the people who does not agree with banning grandfathered commissions, and I'm interested in what you are suggesting. It would appear that you are suggesting that advisers who do not agree with banning trailing commissions, are somehow comparable with swine? If so, that's a rather harsh criticism. You're right to have an opinion of course, and to voice it but I cannot help but feel you are not taking this issue seriously.

I consider myself a reasonable fellow, with a reasonable understanding of the financial services industry. I have experience working in management of a large institution, working at technical levels including product costing and benefit/pricing analysis. My thoughts on grandfathered commissions are based on a sound recognition of the ethical factors, the financial factors, the client best interest factors and the adviser factors that combine to make this much more than a yes/no issue.

"Snouts in the trough", seems a bit of an ambit claim under those circumstances, and just a tad rude. Yet I am interested in the basis under which you are prepared to ridicule myself - who you do not know at all - and thousands of other advisers across the country. Perhaps a little more focus on the actual issues may be a better way to spend time allocated to making a comment?

There is already sufficient slur and slander, so perhaps we can keep discussion at a level that helps those who may not be so aware of the circumstances at play in this contentious issue?

Obviously John wants the monopoly Union Super Fund trough all to himself.

Being an adviser now and having pioneered Industry super when it was Awards that didnt happen!! then in 1992 when Industry funds were born and i had a lot to do with it ...
I can tell you right now that the amount of UNDISCLOSED payments made to management, union officials, fund managers, life companies just to mention a few and that was when i was taking a measly $1 million a month in contributions. Now with assets under management, the fees industry funds are deducting amass to over 1.00% per annum, on billions under management.
Advisers are being ripped off big time.
Clients know what fees they are paid its in each statement twice a year, they have an Option.
They are NO LONGER for the member.
We as advisers have a choice we vote with our feet .. What fund managers such as Colonial First State dont realise is that WE made you and supported you and now you are choosing to abandon us.
Dont be suprised when mass clients exodus occurs.
Advisers are trusted are hell of a lot more than bank and investment institutions.

We have choices and we will excercise them

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