The new Commonwealth Financial Planning (CFP) remuneration model will assess its advisers on both financial and non-financial performance, according to general manager Harry Mitchell.
Mitchell, who spent 12 months with the group, said the changes would see the group’s planners provide either one-off advice to a client, or one of two ongoing service offerings.
Mitchell announced the overhaul to CFP advisers across the country via a webcast yesterday afternoon, highlighting it was designed to respond to legislative change, as well as attract and retain quality adviser talent.
The changes, which will commence 1 July 2013, will include the following:
- CFP advisers will continue to share the revenue they generate past a certain point, but the so-called 'validation threshold’ would not be based solely on upfront revenue.
- Revenue share will be determined on the mix of their 'total revenue’, including both upfront and ongoing service revenue.
- Risk renewal commissions will be at standard 10 per cent
- All trail commissions for advisers on managed investments and platforms will cease
- Revenue share payment frequency will change from monthly to quarterly, with 30 per cent of each payment to be deferred to the end of the year. The payout of this component will depend on adviser’s financial and non-financial performance, such as team and individual performance, including behaviour, quality of advice and customer service, as well as referrals back to the bank network.
Advisers driving change
In an interview with Money Management, Mitchell said adviser feedback was the main driver of change.
“As soon as I joined, they [advisers] were telling me that the remuneration model was not fit for purpose,” Mitchell said. “That’s why we were so consultative in our approach and advisers were responsible for a large part of [change].”
Commonwealth Financial Planning engaged more than 100 planners from around the country in the initial consultation process and tested the final model on 40 advisers under confidentiality.
The feedback from this group, he said, was overwhelmingly positive.
External consultants, who helped the group design the new remuneration model, initially advised CFP not to engage with planners on an issue as sensitive as remuneration.
“But I couldn’t stand there and tell them that I’ve made changes that are right for them without asking them first,” Mitchell said.
“I did it so I could stand there and tell people that it was tested and that it was deemed good.”
He added CFP wished to reward its planners, but it needed to make sure the outcome was right for the customer first.
Apart from responding to the Future of Financial Advice changes, business sustainability and long term growth was one of the biggest drivers of this overhaul.
He used the term “making money safely”, which will help advisers not lose sight of the fact that CFP is a commercial business, but with a renewed focus on ethics.
Some might wish to leave
Asked whether he anticipated negative reaction from some advisers, Mitchell said he remained realistic.
“Some people will react negatively and it is going to impact them all in one way or another. They will react negatively to some aspects of it - be it deferral [of the revenue share payment] or the move to quarterly payout,” Mitchell said.
“Realistically, some people may leave, but I don’t think that would be purely based on the remuneration.
“They will move because perhaps they don’t want to be part of what CFP is about and will seek alternative measures.
“I’m not too precious about it - I don’t think we have any flight risks of people we want to keep.
“It’s going to be really uncomfortable for people who don’t want to do the right thing and I’m ok with that.”
The changes will apply to salaried financial planners only. Commonwealth Bank-owned dealer groups such as Count and Financial Wisdom - whose advisers are predominantly self-employed - were not considered.
Mitchell was appointed to Commonwealth Financial Planning in May 2012, after spending some time with the group as head of business wealth management in Queensland.
He relocated to Australia from Scotland, where he was with the Bank of Scotland Investment Service, and prior to that, a senior officer with the Scottish Lothian & Borders Police Force, where he worked primarily in covert operations.