Downturn spurs move away from commissions

Plunging share prices appear to be adding real momentum to a trend by advisers away from a commission-based model of remuneration.

An informal poll of advisers by Money Management suggested declining revenues on the back of falling share prices are increasingly driving advisers away from investment-based percentage commission on funds under management.

Greg Miller, general manager of advice solutions at dealer group MLC, said there’s “no doubt a lot of advisers are being forced to reconsider their position”.

Many MLC advisers moved to a fee-for-advice model two years ago, and “they’re finding their businesses are holding up much better than if they were on a commission basis”, he said.

He said the trend to fee-for-advice was also being driven by clients “challenging their advisers over their remuneration throughout this market downturn”.

Julie Berry, managing director of advice firm Berry Financial Services and a director of the Financial Planning Association, said the downturn is requiring some businesses to review their model.

A member of the Executive Wealth Management dealer group, Berry said commission-based advisers are “increasingly going to have to provide a service because clients are increasingly questioning what they are paying for”.

“Advisers won’t necessarily be able to get away with doing nothing and collecting an income, such as with some legacy products.”

On the other hand, even those commission-based advisers who have been servicing their clients might have to change their remuneration model under current market conditions, Berry said.

Jo Tuck, director of Cairns-based advice firm Menico Tuck, said the income of commission-only advisers would undoubtedly be suffering under current conditions.

“I suspect falling incomes are driving a lot more planners to a [fee-for-advice] model, and also partly because there is a lot more pressure to go that way,” she said.