Choice wants asset-based fees banned

The Future of Financial Advice (FOFA) ban on conflicted remuneration should be extended to asset-based fees, according to consumer group, Choice.

The group has used its submission to the Senate Inquiry into the Scrutiny of Financial Advice, to also argue for the banning of commission-based arrangements related to insurance advice.

"Choice believes that commissions, soft-dollar payments, asset-based fees, and any other form of remuneration that incentivises advisers to recommend a product or volume of products must be removed," the submission said.

"As a starting point, current exemptions to the conflicted remuneration ban should be removed from the Corporations Act," it said.

"The Committee should consider recommending an extension of the ban on conflicted remuneration to asset-based fees. Asset-based fees are ongoing fees calculated as a percentage of the total funds under advice. They have many of the same market distorting features created by commissions, which have already been recognised as inappropriate for advisers," it said.

The Choice submission claimed asset-based fees encouraged advisers to direct clients into certain types of investments.

"They are significantly less transparent than fixed fees, and in cases where an adviser accepts asset-based fees from long-term inactive clients, they allow fee-for-no-service business models to thrive (where a client continues to pay a fee long after they have received advice)," it said.

"Fixed fees for advice, either hourly rates or lump sums, remove these failings," the submission said.