Secret commissions from platforms to licensees questioned

A financial planner’s submission to the parliamentary inquiry into the financial services industry has drawn attention to the monetary arrangements between investment platforms and financial planning dealer groups at a licensee level.

Neil Kendall, the managing director of boutique financial planning firm Tupicoffs, is the latest financial planner to make a public submission to the parliamentary joint committee currently being chaired by Bernie Rippoll.

In his submission Kendall calls for "platform rebates" paid to licensees and advisers to be banned. Kendall describes platform rebates paid to licensees as “secret commissions” and payments “disclosed in such an obscure manner as to be completely unintelligible to most consumers”.

He believes that many licensees argue that these rebates do not need to be disclosed as they are “not paid to the adviser but to the licensee”. Kendall describes these “hidden incentives” as “very substantial in dollar terms and a major influence on investment dollar flows”.

These payments represent a direct cost to consumers, Kendall said, and eliminating them could reduce the cost of platforms to consumers by up to 40 per cent.

“The introduction of these hidden incentives is the most backward step in the financial planning industry since exit fee products were invented,” Kendall’s submission states.

Kendall, who was Money Management’s Financial Planner of the Year in 2006, believes that while “most financial planners operate ethically and with a genuine desire to help their clients”, they are “forced to operate in a system that has structural flaws”.

Kendall’s submission to the inquiry makes a number of suggestions regarding how the financial services industry could be “reformed” with the aim of providing both “commercially realistic” and “consumer friendly” outcomes.

Among his suggestions is the eradication of commissions for financial product sales, as well as other soft dollar benefits. He believes there is now enough evidence against high commission models at both an advisory and product level to justify a firm regulatory stance on commissions, which he believes were part of an “evolutionary” phase of the industry.

Kendall promotes the idea of fees for advice that are separately identified from all other costs. He also believes that any conflicts of interest and ownership should be disclosed in a prescribed format, and that education and supervision requirements around the financial services industry need to be significantly lifted.