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The chief executive of the Financial Planning Association (FPA), Jo-Anne Bloch, has described the campaign being waged by consumer group Choice against commissions as “entirely unrealistic for both consumers and financial planners”.
The consumer group is undertaking a campaign to put an end to the payment of what it describes as “perverse incentives that lead financial advisers to push products on their clients”. It has launched an online petition and is also preparing a submission to the parliamentary joint committee inquiry into financial services and products in which it will call on the Government to ban “commission, asset based and other incentive remunerations”.
According to Choice, consumers are likely to face “certain types of fees” when they pay for advice “that make the advice they receive less trustworthy and less reliable”.
Choice argues that “commission on financial products can skew advice towards high fee paying products”, while asset-based fees, which charge a percentage of funds under advice, “can encourage advisers to recommend debt strategies to generate greater fee income”. The consumer group also argues that trail commissions erode “a client’s wealth year by year but without any guarantee of advice services along the way”.
“We think that honest advisers should charge you honest fees, and the way to do that is to charge a fixed dollar fee for a fixed service, just like doctors, accountants and lawyers charge their clients,” Choice senior policy officer Elissa Freeman said in a video posted on the Choice website.
“And we don’t think any financial adviser should receive any kickback for recommending you buy a financial product. We just want honest fees for honest advice.”
The spokesperson for Choice acknowledged that “the FPA is looking at this issue, but we don’t think they’re going far enough, fast enough”.
“So we’re taking this problem to Canberra,” Freeman said.
“Together we can convince the Prime Minister to deliver a financial advice industry you can count on.”
Choice pointed to the collapses of Storm Financial and the Westpoint Group as examples of the use of high commission models that “created a moral hazard for advisers and led to people being pushed into risky products that weren’t necessarily right for them”.
The group said there are more than 16,000 financial advisers across the country, “and many are doing the right thing”.
“But seeking personal financial advice shouldn’t mean playing Russian roulette with your life savings,” the Choice website states.
Bloch said the FPA had met with Choice and was aware of its position.
“Obviously we welcome Choice in the debate,” Bloch said.
“But we think their proposals are a little unrealistic and will keep most Australians out of the advice network.”
Bloch argues that there are many Australians who would not be able to pay an upfront fee for financial advice, “even if it is only for $200”.
Bloch said she believes Choice has an “unrealistic view of the cost of giving advice”.
“While I understand that their market may include a number of Australians who simply want single issue advice, there are many more who want more comprehensive advice and who will simply not be able to afford to get it if they have to pay cheques,” Bloch said.
“Likewise, I think [Choice’s view] doesn’t recognise the fact that financial planners spend a lot of time and effort giving advice, which far exceeds a $200 amount.”
The FPA believes that by “offering an asset-based charging structure … far more Australians will be able to access advice”.
Bloch describes an asset-based fee as one that is “directed by the client, paid for by the client out of their account and which can be switched off by the client”. This is distinct from commissions, which are directed by the product provider.
“We believe that if the fee is agreed to by the client, paid for by the client and is turned off if the client doesn’t get the advice, there is no conflict.”
Bloch argued that consumers needed to be offered a choice of payment method, but that the payment does need to be made “in the hands of the consumer, and that’s a big shift away from commissions”.
“Campaigns like this don’t serve to clarify the issue unfortunately.”
