Financial planners are facing a total ban on trailing commissions attaching to superannuation advice under recommendations contained in the Productivity Commission’s final report on the competitiveness and efficiency of the superannuation industry.
The report, details of which have been released by the Treasurer, Josh Frydenberg, makes clear that fees attaching to superannuation be on the basis of cost-recovery.
The Treasurer’s selective release of the PC report has come at the same time as the Assistant Treasurer, Stuart Robert has sought to place pressure on the Federal Opposition to support the Government’s superannuation bills currently tied up in the Senate if and when Parliament resumes later this year.
Robert said that with industry superannuation funds set to overtake self-managed funds as the largest sector in Australian superannuation, Australians needed the Government’s so-called Protecting Your Super Package and Member Outcomes legislation passed more than ever.
With the PC’s final report backing many of the contents of the Government’s super bills, the minister appeared to be setting the stage for a campaign against Labor’s policy proposals, particularly its approach to franking credits and negative gearing.
At the core of the Government’s approach to the PC’s final report is the suggestion that workers will be better off if under-performing superannuation funds are weeded out of the industry, with people in their mid-50s standing to gain up to $79,000 extra in retirement.
Among the most radical proposals is for funds to be forced out of the industry if their investments options fall short of their benchmarks by more than half a per centage point over a rolling eight year period.
Frydenberg has said that the Government will wait until after the final report of the Royal Commission into Banking, Superannuation and Financial Services Industry before finalising its response to the PC.
Comments
Welcome to the communist party (which is just PC backwards) what a wonderful idea we will have the State set the returns to be expected from Super - no Entrepreneurs here thank you! the big Industry funds will get bigger and the most important people will be the Valuers that price the gains on the big Infrastucture and Illiquid holdings of the Industry funds. We might even be lucky and see a return of the smoothing accounts previously beloved of Industry Funds when good years performances are capped and used to make up for the under performing years. The Comrades should be happy that the individual masses get to share their wealth with others all in the spirit of a planned return. No wonder this country is going to the dogs when the uniformed are led by the uninspired and it is all about how it looks not what the result is. This sort of thinking will add the Superannuation industry to the advice industry as an endangered industry and in a few years the State will realise that if they take everyone's Super and run it with some Canberra Bureaucrats they will have all the money they need to fund social engineering programs.
Well said. It's really incredible to see the size and influence of government now in what are meant to be free market promoters. Scary stuff. The bureaucrats have become the henchman in other world communist/dictatorial attacks on free society - like them, many thought they were just doing their jobs, but many were devoted to the cause, a dangerous mix.
Wow - all this is going to happen with the simple ending of the rip-off trailing commissions - end of the World is nigh!
The shady Assistant Treasurer, Stuart Robert is getting in on the act and have to wonder what self-interest angle he is working on now.
Comrade Richard Hed, I just knew you wouldn't miss this opportunity! How about while you are here, explaining how an 'out performing ISA fund' supposedly Balanced investment has over 80% in growth assets as well as around 12% utterly opaque 'alternative' investments?
Are you that ignorant that you do not believe this form of gov intervention in the investment landscape (effectively reducing competition based on false metrics, misrepresentations and an entirely uninformed position) is a cause of concern? Sorry, strike that dumb question, your comments to date have proven that already.
"the State will realise that if they take everyone's Super and run it with some Canberra Bureaucrats they will have all the money they need to fund social engineering programs."
That's the plan.
Why do commentators continue to use the words 'Trailing COMMISSIONS' in respect of superannuation or other investment products. 'Commissions' on these products are banned. Do they mean 'fees' charged to a client by an adviser?
My thoughts exactly Billy. Fees charged to a client for advice fees coming out of superannuation is not a trailing commission. It is a fee for service which the client has specifically authorised to do so. Why would this be banned? If a client agrees to pay for an advice fee with superannuation money instead of it coming out of their own pocket, why is this an issue? At the end of the day, it's the client's money.
No where in this conversation do I see any discussion of investment risk.
Most complaints via Ombudsman aren't fees, it isn't performance, its the risk taken with the investments and the outcomes that produces, which yes directly leads back to performance. So how about we get all funds to discuss risk first and then compare the pair!!!
After all you only find out who is swimming naked when the tide goes out !!!
The PC dismisses the value of financial advice. However, they obviously believe that it is fine to use super fund money for housing, medical, dental and domestic strife. Medical practitioners and dentists will have a field day with the early release provisions. They already are - how difficult is it to get 2 doctors sign the required forms.
Super - a pot to plunder for everything but financial advice on how to provide better future outcomes.
Cant see where the Productivity Commission dismisses the value of financial advice (show where stated). What it does say that there are some financial fund managers who are not managing their clients' funds very well and that superannuates should be helped into the best 10 performing funds. Any good financial advisor would do the same for his/her clients.
best performing over what time period? how measured? rolling returns, point in time, risk adjusted? After tax and fees? compare allocations when none are precisely the same? Compare fees when the complexity of assessing this is already noted by regulators and academics? The evidence is that top performers in one period often end up at the bottom in the next? How do you factor in the costs required to shift from one provider to another to chase the best 10? CGT? Buy/Sell costs? It is more likely that an investor will be better off staying with a reasonable fund for the long haul, than incurring costs in chopping and changing. Time out of the market for a month or so while rollovers occur? Insurance loss. Grandfathering for centrelink loss? You want to make it simple like your productivity friends, but it aint.
How are the 10 best performing funds being determined - is it by the ISA themselves?? Superratings, Rice Warner?? right now what we have is super funds calling their investment options Balanced and determining for themselves whether assets they own are defensive or growth so that they can meet the criteria to be compared against other so called Balanced options. Hostplus is apparently the top performing Balanced option at the moment with a 97% allocation to growth assets. But they've determined that approx 20% of their unlisted assets are actually defensive, conveniently allowing them to fit into the 61%-80% asset allocation range that enables them to be compared against true Balanced options. If you actually compare Hostplus's performance to High Growth options from the various funds they wouldn't be a top performer at all. Until this issue is addressed it's impossible to say that one fund performs better than another. When the next GFC rolls around all of those Hostplus members will pay the price in the same way MTAA members did, they just don't realise how much risk they are taking with their money because they're being lied to by their fund.
Would be nice if ISA ultimately got themselves caught in their own snare. If legislation passed about 'low performing' funds but then clarity and defined specifics around asset allocations, investable asset definitions and categories, removing opaque descriptions etc and the ISA 'compare the pair' was done accurately, utterly hilarious if this quasi-criminal orgainsation were then forced out of the profession that they never should have been allowed intoQ
This report is very Interesting for Financial Planners and consumers basically tells you that the Superratings, Rice Warner etc are not doing like for like comparisons but rather they are just comparing the name for name without looking under the bonnet of a super fund for asset allocations. And the reason is it isn't law what super funds can label as "balanced" investment profiles which is done so by asset allocation. makes you wonder how the system as gone so long without such a simple and important detail in the corps act
Makes you question why there isn't a law to already to stop the masking of performance which Catholic Super have also just been accused of https://www.afr.com/personal-finance/superannuation-and-smsfs/super-fund...
https://www.pwc.com.au/consulting/assets/publications/comparing-super-fu...
All very good reads and when you really start looking at comparing asset allocations you start to see retail fund just out perform industry funds when you start comparing correctly. Also same goes for industry funds balanced vs growth (retail) you can get a more like for like comparison when giving advice to a client looking to compare what their options are.
I think these reforms are sensible and overdue.
I agree that any Superannuation commission arrangements that somehow dodged the clear intent of FOFA should be immediatley banned. In many (and perhaps most?) cases, they are nothing more than legalised stealing, as "clients" have money withdrawn from their account without their knowledge or consent to pay a commission to an "Adviser" they have never met and who has never done a single thing for them.
Where an adviser is actually providing a client with a service that they value, it should not be a problem to replace a trailing commission with an advice fee.
Likewise, Super funds that significantly underperform their benchmarks for extended periods of time demonstrate they are not up to the job. It is their members that suffer from their incompetence. I don't think it is unreasonable for the Government to protect people from such Super funds.
Mark, are you offering to provide the services (which you say are nil) to commission clients for me? If so, how much will you charge for a bundle of say 100 clients pa?
And why do you believe that an Adviser never met these clients? How did the policy come into effect in the first place? And tell me, what is your view on Industry Funds charging ever member for Inter-Fund advice? All pay it but only some use the"service".
That is an overly simplistic statement Mark. How about we also reduce death on roads by limiting all travel (roads and highways) to 30km/hr, or we reduce health issues by banning sugar and sweeteners from all softdrinks and chocolates, or save the waterways by banning farmers from using fertiilisers completely, in fact why not just ban farming to be 100% sure?
Dumb.
I agree the fat toads who have bought books without ever seeing the clients or the guys who set a policy up 10 years ago and have never since met the client again for even a review, need to be stopped. But stopping fees from super (commissions is an intentional misdirect so that there is a chance that most planners who are doing the right thing just skim over the article, or like you don't think deeply enough about it, and mistakenly believe 'it will not be that bad').
We charge fee for service, but for many clients who have high debts, families and tight cashflow, the option to receive our ongoing advice via superannuation to better their long term situation, is imperative.
All this prposal will do is further reduce advisers, especially those with a younger client base. Firms like ours where predominantly we deal in the retiree / imminent pre-retiree space where they have better access to super withdrawals or less burdens on their cashflow will be fine.
I'm with you that the trail commission on 'books' of 'clients' must go, 100% and I'm also with you that they should not tinker with our ability to charge a fee to that asset in relation to that asset.
Thankfully the PC finding does actually delineate that it is trail commission that should be banned (recommendation 14, page 70 of the Assessment Overview) and elsewhere in the finding they speak of advice fees as a distinctly separate way of charging.
About 2 years ago I met an adviser from a firm that had moved to a pure play fee for service model with all fees deducted outside super monthly from after tax dollars in the mid 2000's - visionaries.
Hi John Z. I made numerous statements. Could you please clarify which statement(s) you consider to be simplistic, and more importantly, justify that opinion. Your analogies with roads, sugar, farmers etc are extremely imperfect and quite frankly, just silly. Please tell me how an individual client would be disadvantaged by an Adviser no longer receiving a trail commission from their Super balance?
Also, you seem to be of the opinion that the term "trailing commission" also refers to an ongoing advice fees paid from superannuation. This is clearly not the case. The PC report makes it clear that it is referring to grandfathered trail commissions. See the bottom of page 40 and also recommendation 14 on page 70 of the overview.
Mark7, I am not John Z but to illustrate why your argument is simplistic I will use your question...
"Please tell me how an individual client would be disadvantaged by an Adviser no longer receiving a trail commission from their Super balance?"
Mark7, you are basically saying advise is worthless.
Is that your point?
Additionally, Commissions are not paid by the client directly, they are paid by the product because the Product provider did not want to pay for staff and office overheads etc to write the business and maintain the business in the first place - they basically outsourced it. In my experience, moving a client from a commission to a fee arrangement WILL cost the client more as compliance is a different environment. Smaller clients in commission products will typically not be moving to a fee for service model, they will be dropped by our practice (and I'm not alone) as the costs associated with compliance under Fee for Service are much higher. This will leave many client who have valued our service but sadly, we will not offer it going forward. So, perhaps your right, the client will be better off without the adviser receiving a ongoing commission and they can sort it out themselves - perhaps with an Industry Fund which charges every member a fee for "Inter-Fund Advice" and provides this to only those that use it - which sounds very much like a commission arrangement, except the only advice they will get is conflicted via an employer/employee arrangement. Ie, if you work at Australian Super, guess what super you would recommend?
Ok so, your simplistic statements on 'it should not be a problem to replace a trailing commission with an advice fee' and 'Likewise, Super funds that significantly underperform their benchmarks for extended periods of time yadda yadda' both are identical to idiots who say things like my examples of road toll/sugar/rivers etc. And if you have to ask why or how (again) that's sort fo a self fulfilling statement that your thinking is simplistic right there. But I would humour you, and give you the reasons if you want to display your ignorance?
Choosing to make an Ad Homin attack rather than specifically answering my questions says more about you than it does about me.
Mark7, I am not John Z but can you respond to my questions rather than throwing in the towel?
Very well stated case.
Hi Mark7, in relation to your comment “pay a commission to an "Adviser" they have never met and who has never done a single thing for them.” can you please explain to me how this is different to industry funds cross-subsidising intra-fund advice that most members do not utilise even though these members pay “membership fees” every year?
Are you argueing that because some other group are doing the wrong thing, therefore I should also be entitled to do the wrong thing? Either way, you'll find the PC report has recommended both practices are banned.
Firstly, good to see you acknowledge that intra-fund cross-subsided advice is wrong and secondly, you are misinformed because there is no evidence that PC has called for “free” intra-fund advice to be banned. I strongly suggest you get actual facts before attempting to make a point.
"The Government should enforce this across all MySuper and choice products, and prohibit funds from cross-subsidising between members — which would see an end to excessive fees (such assome percentage-based administration fees) while also ruling out scope for some members to bear the cost of other members’ decisions." (p40)
A straight forward reading of that would seem to suggest that the PC has recommended that cross-subsided advice should be banned.
“In contrast, advice fees are closely regulated in MySuper products (with funds only permitted to recoup the cost of intrafund advice from fee revenue), thereby protecting members from undue balance erosion.” [p53]
If you read further you will find the the PC is advocating for MORE intrafund of “high quality” to “help members make decisions” as an indicator of active member engagement. Therefore, your reading in isolation is flawed and not accurate.
The government is going to let the conflicted advice arrangement for industry funds to continue and grow so there is absolutely no chance of a level playing field for financial planners who are required to meet all of the legislative and regulatory burdens which industry fund financial planners can blatantly dodge with the tick of approval from ASIC.
Mark7 - you should read today's Financial Review. There is a good article (page 28) - how to game the new super shortlist. Makes for interesting read and a good answer to your question of how a client will be disadvantaged by an adviser not receiving a trail commission. The answer is the client better be know when to switch funds each four years - and handle the insurance issue etc. Do gooders never do any good.
If the Govt enforce the banning of trail commissions through law, they had better be prepared to pay compensation to all affected advisers in relation to the acquisition of property on just terms.
The obliteration of adviser's current income and subsequent business values cannot be allowed to occur without fair and reasonable compensation being paid to the dispossessed party.
Talk to the taxi industry...
Look what the Government did to the poor guys operating Cabs government charging them all half a million to operate and then just let Uber into the market no problems different rules
Uber certainly improved the services by taxis - no drought of taxis at 3pm, cleaner cabs, less rip-off fares.
Taxi industry thought it had a monopoly and without competitors. That allowed the taxi owners to create a taxi plate bubble, which went the same way as other bubbles. They created the bubble and paid for it.
The value of competition and new technologies. Capitalism at work.
Shameful that the government bailed out the taxi industry from its own doing.
Mr Hedware, yet again we're on opposing sides to no ones surprise, and again you fluff through the reality of what has occurred in that industry with unregulated drivers (rapes, pressure point pricing models, and aggravated assaults by drivers not the least of them). But hey, their cars are clean right?
Contrary to what you mistakenly spouted, the state governments controlled the issue of plates and oversaw the transactions, hence creating the 'valuation bubble', some would argue for their own revenue raising reasons. The taxi owners/purchasers were simply the ones who paid or received the market price at the time. All this is freely available information including the state gov regulations, with recorded transactions for numerous years publicly available, if you took the time to look before ignorantly spouting off on something that the extent of your knowledge is obviously limited to the back seat of a vehicle ride.
Clearly you do not have a taxi owners as clients, or else you would be aware of the wider issues and immense depletion of hardworking families' wealth, through absolutely no fault of their own.
Shame on you.
You know nothing.
Yes the governments issued the plates. But it was the taxi industry (remember Reg?) that worked on governments to restrict the number of plates issued. That way the value of the plates went up and taxi owners kept buying at the higher and higher prices and they were the ones who set the market price for plates - not government. Even Reg knew that the NSW taxi plate bubble was going to burst and tried hard to get NSW Government to underwrite the industry well before Uber came on the scene.
When it did come crashing down, Reg and his mates in the other states didn't get much support from business. Business always complained about the shortage of taxis (remember the 3pm changeover; remember no taxis at airports) but the taxi councils weren't having additional plates sold. Revenge was sweet.
Taxi cab plate owners were not particularly hard working particularly those with more than one plate. It was their underpaid drivers who were hardworking.
There were plenty of regulated taxi drivers convicted of rapes, assaults, theft, credit card fraud, and so on. There was also plenty of taxi drivers ripped off by customers but more often by taxi cab owners.
Yes I have spent many times in the back seat of taxis and still do in preference to using Uber which has dark sides.
"Taxi cab plate owners were not particularly hard working particularly those with more than one plate. It was their underpaid drivers who were hardworking."
Marxist to the core.
You know nothing.
Hedware, although I rarely agree with you if at all and you never answer a question when the facts don't suite you, clearly you have lost the battle on this one as your comment ads nothing to debate, logic, reason or simple good argument. Do better, as your attitudes encourage me as an Adviser to remain in this industry and hopefully, see Industry Funds valuations (you know, the unlisted ponzi scheme) bit them - they can maintain it for a while but not forever.
'Benchmarks' is an interesting term and until there is legislated, hard & fast rules around what category a fund sits in (based on actual data, not what the the fund 'tells' the research / rating houses, then it would be just more of the same i.e. the unbalanced, Balanced Fund shemozzle.
Yes, there is no shortage of super fund members who want support from highly regulated & now 3 year University education financial advisers, for free. Talk about fantasy land. Our firm is already declining to take certain clients, and it won't be too long before there will be a massive waiting list to get in to see an adviser, as exists currently in the UK. Just ridiculous.
They should also be banning all insurance commissions that come out of Super!
The retail funds need to be very worried about this specific development, as it will end up all SMSFs or all Industry Funds. Blind freddy can work that out.
Trail commissions are a small drop in the ocean. Why is there no discussion on the contributions tax impact (15%) on superannuation balances and superannuation income tax on accounts (15%) and higher net worth clients 30% contributions tax.......higher net worth clients are not contributing much each year and $25,000 is a pathetic figure, Why contribute to super with 30% tax when company tax is the same (or less 27.5%) and you do what you like with the after tax monies. When we were allowed to claim up to $100,000 concessional at least there was a good reason to contribute.........now it is a joke and the powers to be who are paid by government (sorry by Australian tax payers) want to kick we lowly financial advisers in the butt because we have amassed a small ongoing income on trail commissions. Must our services be free?..........will the government pay us a salary? Pro bono work is good for some but not for us.
Curiously, I fail to see any recommendations from the Productivity Commission regarding making it illegal for Industry Super Funds to transfer donations to Unions [which is then forwarded to Political candidates].
Interested to have your evidence of industry super funds transferring donations to unions - dont bother quoting Rivers of Gold that was concocted by IPA.
interested for evidence of banking and finance industry donations to political parties (with Labor or Liberal).
ISA's obviously pay unions and union officials - https://www.theaustralian.com.au/national-affairs/industrial-relations/u...
FOFA has already effectively banned trail commissions, i think this just means grandfathered trail commissions from the pre FOFA time For too long we advisers got paid for providing many clients with no service. We can still charge fees for our service and get them to re sign every 2 years which is pretty fair.
If they ban insurance commissions though they have lost their mind. Clients arent going to pay between $2,000 and $5,000 on top of their advice fee and fees to the insurance company to have an insurance plan set up by a professional. they arent going to pay the $500 pa servicing fee and they will be left to deal with any claim by themselves or have to pay a lawyer 30% of the total payout. Many clients will end up doing it themselves and lives will be ruined even further when people get sick, injured or die.
Wait wasn't the Treasurer, Josh Frydenberg the Director, Deutsche Bank AG 2005-09
In other news "After a protracted investigation, the US Department of Justice moved last month to impose a $14 billion penalty on Deutsche Bank for fraudulent practices in relation to the US sub-prime mortgage market in the lead-up to the 2008 crisis".
Guess he can be trusted making decision on peoples savings from his great experience with on the job training
I'm just happy that the Productivity Commission is paying rent to my personal SMSF.... A rolled Gold tenant...lol
Both sides of politics are being played by overseas interests. Here you have a liberal government proposing an anti-competitive socialist solution. The game is to make super replicate taxation with the pool of funds under a centralised control whether it be industry funds or a future coalition aligned competitor of the same ilk. Being played from both sides. Mortgage brokers next. Longer term accountants. Boutique Fund Managers out of super, SMSFs regulated into oblivion. LBRA's will be banned soon. All super "derisked" in the "consumers interests" which leaves mandated portfolio allocation. Into guess what, Australian Government Bonds for instance (simply a government IOU) - which is how it replicates taxation. i.e. pay this contribution (um tax) now and we promise we will have money returned to you as retirement benefits (um pension). Your money will barely keep pace with inflation while we use it for self-enrichment and exercising political power in the 40 year interim. We will use it to fund infrastructure controlled by people politically aligned with us. If we do invest in shares it is large companies critical to the economy where guess what we can strangle them to do our bidding by things like overturning remuneration arrangements with a minority vote which is easy to achieve when you control massive super funds. Then you've also got the increased ability to "pump and dump" like in the years up to 2007/08.
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