Government officials are completely overestimating the likelihood that volume rebates influence advisers to recommend certain products to clients, according to the director of Dealer Group Advisers (DGA), Andrew Wheeler.
In a survey by DGA, completed for the Treasury Department, only 16 out of 43 dealer groups surveyed were forwarding volume rebates on to their advisers. Of those 16 dealer groups, only three or four dealers, representing approximately 135 planning practices in total, were receiving amounts of $50,000 or more in rebates per practice a year, Wheeler said.
Wheeler estimated that these 135 planning practices employed no more than 500 advisers between them, meaning that each adviser only received $13,500 in rebates.
Of the other 12 or 13 dealer groups remaining who passed on volume rebates to their advisers, each planning practice would only receive between $3000 and $15,000 in rebates, split among three advisers, Wheeler said.
The rest of the 43 dealer groups in the survey did not pass on the volume rebates to their advisers at all, he said.
Each practice that received rebates had hundreds of clients between their advisers, meaning that each client would only be worth a few hundred dollars in rebates, which needed to be compared to the thousands of dollars received per client for ongoing advice, Wheeler said.
On an average client portfolio of $300,000, an adviser would only generate a rebate of $150 – $210 per client, when advisers were receiving at least $2000 and probably more as an ongoing advice fee, Wheeler said.
The survey suggested that the government was completely overestimating how much volume rebates advisers were receiving, and consequently, whether it was creating a bias among advisers towards certain rebate-producing investment products, Wheeler said.
Most of the rebates being received by dealer groups were from platform providers as a whole, not from particular investment products, and thus the rebates could not be said to be biasing the adviser towards a particular product, Wheeler added.
Wheeler said any volume rebates that a dealer group did receive should simply be disclosed to the client, and not banned. Disclosure would lead to dealer groups banning rebates themselves for fear that a client would protest, Wheeler said.
