Clients do get value from trailing commissions, says AFA

The Productivity Commission needs to understand that when trailing commissions are turned off the payment is retained by the product provider and not necessarily passed back to the client, according to the Association of Financial Advisers (AFA).

The AFA has told the Productivity Commission (PC) that it believes it is also important for the Productivity Commission to understand that there might be a range of reasons that prevented a client from being moved from a trail commission paying product to a modern product.

“These reasons include exit fees, capital gains tax issues, deeming treatment (for income stream products) and potential complications in obtaining replacement insurance where their health may have declined,” the AFA said.

The AFA submission said the organisation was concerned that the PC might be incorrectly assuming that no service was being provided for the trail commissions that were being paid.

It pointed out that the ongoing servicing commission on insurance was intended to pay for regular reviews of insurance needs and to assist clients at the time of making an insurance claim.

“Financial advisers do not typically charge for assisting clients with making an insurance claim,” the AFA said. “The cost of this is covered by the servicing commissions that advisers received across their full client book.”

It said, on this basis, the superannuation industry should not be told they were getting no benefit from the trailing commission arrangements.