Managed funds brokers could threaten revenues

Managed funds brokers that offer trail rebate services may become a threat to the financial planning profession.

Should the industry transition to fee-for-service, possible grandfathering provisions regarding commissions may not be the saving grace for planners’ recurring revenues. The focus on ongoing commissions has put the spotlight on a number of managed fund brokers offering trail rebate services, asking as little as $300 and $400 per annum for their services.

Some of these companies include InvestSmart, Wealth Focus and iRefund, which collect all adviser commissions and product commissions and refund them to the client.

Transferring to one of these companies is as simple as filling out a form — something the managing director of business consultancy E&W Strategic Partners, Lap-Tin Tsun, feels might become a significant threat to planners in the future.

“The client gets the same benefits and the same fee structuring, but the difference is that they dial down the commissions to a flat fee of, say, $400 per annum,” he said. “That can be very attractive if you are paying about $1,000 or $2,000 and you are not getting serviced.”

He said about 95 per cent of legacy clients are currently unserviced, and these clients would be taking a leap of faith if their planner tried to engage them now. As such, Tsun agreed that grandfathering provisions in forthcoming legislation would be little comfort to planners who lose their clients altogether.

Wealth Focus managing director Sulieman Ravell said their target market is partly those investors who are dissatisfied with paying ongoing commissions to advisers they have not heard from since setting up their investment.

“We’re not looking to replace the services of advisers who are actively looking after their clients,” Ravell said. “The adviser has to get paid for the job they do, but if there isn’t anyone doing that job then clients can use a service like ours.”

The DIY investor market is currently dominated by CommSec Direct Funds, which has about 70 per cent market share. InvestSmart controls between 12 and 15 per cent.

Ravell does not feel there will be a dramatic increase in similar companies because the cost of entry is generally high. He added: “The fear of trail commissions being removed is also likely to act as a deterrent to new entrants.”

Wealth Insights market researcher Vanessa McMahon said none of these companies have come up as a concern in her focus groups.

“Things have slowed down because of the global financial crisis, not because investors have found other ways to invest.”