Trail commissions not for ongoing service says AFA

Grandfathered investment and superannuation product trail commissions are declining in influence and should be allowed to continue, according to the Association of Financial Advisers (AFA).

What is more the AFA has claimed that trail commissions do not actually constitute an ongoing service arrangement and should not be treated as such.

In its submission responding to the first-round financial advice hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the AFA also claimed the decision with respect to commissions was not always in the hands of advisers, with many clients opting to remain inside such arrangements.

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“Grandfathered investment and superannuation product trail commissions are a declining influence in the financial advice sector,” the submission said. “Trail commissions are typically between 0.2 per cent and 0.4 per cent of the account balance, which is at a level well below the typical fee for ongoing service arrangements.”

“For this reason, the relationship with a commission-only client is often a different relationship to one with an ongoing fee arrangement client and the level of service is often different,” it said. “When offered the choice to change to a post-Future of Financial Advice (FoFA) product, many clients choose to stay where they are.”

The AFA submission also argued that a trail commission payment for a superannuation or investment product did not constitute an ongoing service contract between the financial adviser and the client.

“An ongoing fee arrangement is very different as it does require the provision of ongoing service and is an agreement between the adviser and the client,” the AFA said.

The organisation made a specific point of noting that, in the context of life insurance renewal commissions, the situation was somewhat different as the payment “might enable the adviser to do a regular review of the client’s insurance needs and also cover their costs when providing support and assistance in the claims management process”.

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These comments confirm the AFA is not an association representing professionals. There is no concern for the clients of it's members only the conflicted interests of it's members.

Provided the taking of money from people is not illegal (don't worry about the ethics or morality of it) that is OK for the AFA and it's members. Much of what is wrong and lacking in the financial planning space is summed up in the position of the AFA.

Many products allow you to turn off the trail and substitute with a fee for service, fixed or %. All you need is a conversation with your client to explain the difference and reexplain what you do for that fee. This is just an attempt to hide the obvious, that lots of planners get lots of remuneration and deliver no service. The gigs up - move with the times.

Well put

but why. I started doing that but after so many discussions I thought but why... the commission is declared on there statement and I provided clients with a Fee disclosure statement annually declaring theses commissions and I review 98% of clients last year and provide them a RoA with an adviser fee declared stating part or all is a commission. I can't move them because of Centrelink reasons. The fee difference between the products there is in and a new product is less than $100-$200. The cost to do a SoA is hundreds. Why would I change when the FPA gets commissions from AMP & CBA etc, and declares it as members fees on their annual report?

An FDS is not legally required to carry the Trail commission. That you do is your practice. But most would not, so the client is not knowing. Trail commissions also don't always appear always on Statements for Super. You are reviewing your clients, so you must have a serviceable number of clients. There are may who have 500+ clients, and individually you can't service them, so why the fees/trails? Yes, the cost of saving little and the centrelink/cgt need to be considered I agree - but as I say, you can turn the trails to fee and have lost nothing, its a bit of admin to comply. It's not really about you individually, but about eliminating the broader issue and conflict to take temptation away from those who can't help themselves or are gaming the system.

Your pseudonym " Bozo" is so very apt.

Spot on Bozo, the whole reason practices and books have sold for 3-4x revenue is because of these commissions or pre-opt in fees where the advisers havent needed to service their clients... An adviser simply cannot service thousands of clients... Fees for no service need to be banned for our industry to be taken seriously.

Amazing anyone can defend maintaining these arrangements.

A very clever maneuver by certain firms and even the FPA to protect their puppet masters by turning the attention away from the big end of town to individual advisers. The old.. it's not us it's planners argument...again. Let's not let firms like AMP and CBA win by going back to the 1990's and a start commission versus fee debate.when a fiduciary duty exists. This is a distraction from the real criminals in this market. Even ex Count boss the father of Orphan clients with thousands of clients for whom they are getting commissions from with no adviser attached, (due to positive consent required upon changing licensee) was quoted as telling advisers to get with the times.

I agree, some of the doyens of the industry should be disrobed if they really speak out against the ills from which they benefited, admittedly in a different time and different practices, but to now say it's all bad and those bad practitioners who are doing this is really galling.

The FPA gets a greater proportion of their income from firms like AMP & CBA Financial Planning via the professional partner program. I think the FPA is more about protecting this relationship then actually looking after the public interest. It's an easy way to turn the attention off large institutions like the one's I mentioned and just once again blame planners. Hence a difference in opinion between the AFA and FPA. Why don't we just ban planners now and get it over with? We have a fiduciary relationship with clients since 2013 so getting commissions and providing no service won't stand up in a court of law if anything was to all the clients I don't service I took a hit and ended our relationship.

Yes, you took the hit voluntarily and many have not and are fighting taking it now, even with 3 years to adjust their businesses. They are fighting hard because the gravy train for some of them will be over and they don't know how to deliver value for fees for service.

Are Jason, Bozo and Hedware auditioning for the Three Stooges comeback ?
What a crock of righteous piffle.
All 3 of you seem to assume that advisers who receive remuneration via an inbuilt product trail commission do not complete client reviews, facilitate investment strategy assessment and performance analysis, process insurance alterations, manage insurance claims, calculate benefits of salary sacrifice arrangements,
discuss pre-retirement strategies and current legislative changes, facilitate information in respect to separation of partners, provide advice regarding nomination of beneficiaries inside superannuation leading to discussions relating to estate planning issues and so on and so on and so on.
These duties and responsibilities to clients are daily , weekly and yearly and whilst under the law, an inbuilt product trail commission does not represent a contractual agreement to be able to access or receive services, it none the less provides a vast majority of clients who have these products and arrangements access to a range of valuable advice on a very affordable and cost effective basis.
The assumption by a number of people who have an ideological agenda to push that anyone who receives a commission is unethical and does not deliver value is entirely wrong.
Sure, there may be a small minority who do not deliver the contact or services expected, but this is no different to an adviser who charges a fee for service only model who calls their clients into their office 3-4 times per year to make absolutely meaningless and minor investment strategy changes in order to charge a fee or to justify their annual fees
and by being seen to be "managing" the clients business, which gives the client a warm fuzzy feeling, but is effectively charging " fees for over service ".
So, for the 3 stooges who have an identity crisis, why don't you pat each other on the head and poke each other in the eye, because it would be much more entertaining than reading your evangelical sermon of righteousness.

The evidence submitted, you can read it for yourself, is that it is not a small minority of clients receiving no service for the fees. Did you not read about the 14,000 clients with one institution? Try extrapolating that and see what you come up with. Go out and look at some adviser books for sale, show me more than 200-300 clients and tell me how you're servicing them regularly? But in a competitive market you can back your business model and if that means sticking with what is, then good luck to you.

Unfortunately many have a vested interest in maintaining grandfathering in its current form. The books for sale generally have hundred, if not thousands of clients and are coming from small practices... No chance they were being serviced and little chance they will be by whoever buys them either. About time we put clients ahead of business profit... If you made a dumb business decision and bought a book you never thought you'd have to service, no sympathy from those in the industry who actually do the right thing. If your clients wouldnt pay if you invoiced them directly, dont charge them at all.

every time a client rings the super fund to change and address or whatever. they get sent to me because I am the servicing adviser. So if I am not paid for this, then the super fund better setup a call center to manage this stuff, and charge the clients for this work, because I will not have my name as a contact point on the policy if I am not paid for the service.

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