Don’t incentivise planners via commission rebates says ISA

1 May 2019

Government proposals to rebate grandfathered commissions to clients via product providers would represent a significant abrogation of one of the key recommendations of the Royal Commission, according to Industry Super Australia (ISA).

In a submission filed with Treasury commenting on the proposed legislative changes, ISA said that Commissioner Kenneth Hayne had recommended that the grandfathering provisions for conflicted remuneration be repealed as soon as reasonably practicable.

However, it said the Government’s legislative proposals “basically provide an exemption to the blanket prohibition by allowing a rebate/monetary benefit scheme to be set up (as well as record keeping obligations)”.

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 “ISA does not support the proposal set out in the Exposure Draft relating to the provision of a rebate or monetary benefit,” the ISA submission said, adding: “Despite universal political acceptance of Commissioner Hayne’s recommendation that grandfathered conflicted remuneration for financial advisers should cease, the proposed regulations allow conflicted remuneration to remain payable after 1 January 2021”.

“The proposed regulations are completely at odds with Commissioner Hayne’s recommendation,” it said.

In a media release attaching to its submission, ISA claimed “consumers will once again be left vulnerable to raids on their super accounts by financial advisers”.

ISA also argued that rebating the grandfathered commissions to clients was flawed because it did not achieve an end to commissions “an in fact the arrangements which underpin the allowances being made will be complex and likely to give rise to different interpretations”.

“There is a real risk that consumer harm will eventuate and that the same circumstances might not produce the result that a reasonable person would expect, as we saw through the Royal Commission case studies,” the submission said.

“It seems that this is another example of poor decision making and a refusal to acknowledge that consumers will be negatively affected by the proposed rebate/monetary benefit scheme,” it said.  “Allowing product issuers to avail themselves of a rebate/monetary scheme which can incentivise advisers to continue to recommend that clients remain in existing commission-based products undermines Commissioner Hayne’s recommendation.  The weakening of consumer protection can only cause harm at both an individual and industry level. “  

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Umm, if the commission is rebated to clients, then it is no longer a commission based product and there is no longer any potential conflict of interest. ISA - don't let the truth get in the way of a good story!

Basically ISA wants to see Financial Advisers driven away from providing advice to clients and to achieve this they don't want us to be paid for what we do.
They want to have their cake and eat it as well. They want Commission to be rebated to clients, but they are implying in their biased submission that adviser should not then be able to setup and ongoing adviser fee from the client for ongoing advice.
Reprehensible scum nags who are to in bed with the Union movement and the ALP.

This clearly shows that the ISA does not understand how the advice industry works, advisers must act in the best interests of their clients at all times!

I really wish people would stop saying they don’t know how the industry works or they don’t understand x, or they are clueless. They know exactly what they are doing. The previous commenter has it exactly right.

MaxistOnslaught - spot on.

This seems to be what Industry Super is doing with Intra Fund fees....what employed ISA staff member would recommend moving out of an ISA fund paying their salary?
“Allowing product issuers to avail themselves of a rebate/monetary scheme which can incentivise advisers to continue to recommend that clients remain in existing commission-based products undermines Commissioner Hayne’s recommendation. The weakening of consumer protection can only cause harm at both an individual and industry level. “

Yet it is ok for the industry funds to take insurance fees out of super without the members permission? It is ok to deduct ongoing fees which cover advice services without the client ever obtaining advice? On what planet do these guys live?

When the ISA funds rebate all commission payments for selling insurance to every single member if they need it or not, and no longer get paid on the amount of successful claims, ( claims experience volume payments) then they can come back to us. I have made this point again to my local member again today. The point is these funds are incentivised via many self interested motivations, the amount of FUM they hold, the member fees themselves and clipping the ticket on the investments as well as taking commission and these other volume related payments ( advisers get paid the same commission on insurance so they can choose whoever suits the clients best for their insurances) . They are incentivised to leave people in their funds ( advisers can move clients as they see fit, they charge a ASF that can be moved with products if needed) they are incentivised to use members money to pay financial planners to provide BIAS advice on one product only, and only to those that seek that advice out, they CROSS subsidise members fee money to pay their in house planners. ( Advisers need to get a agreement to charge fees to every single client, show what services have been offered and provided, then opt into these fees bi annually. ) This is so far out of whack we are on different planets... this is a joke!

Isn't an Intra-Fund advice fee charged to a member who does not receive advice deemed to be a raid on their super account by the fund administrator ???????

Intra-Fund advice is low level and basic advice and curtailed by all the ASIC restrictions and such advice cannot be considered equivalent to individual specific and in-depth advice that a professional financial advisor provides.

Intra-Fund advice is not restricted to industry funds and it is misleading to suggest otherwise.

If an industry fund decides to have an authorised adviser give financial advice to a member, then the member picks up the tab and not the fund.

Intrafund advice is NOT only "low level and basic" and can include the following:

- Risk profiling in relation to investment advice
- Salary sacrifice strategies to minimise PAYG tax
- Transition to Retirement strategies incl. establishment of NEW pension products
- Insurance needs analysis to obtain and/or increase cover within a super fund
- Estate Planning advice with the recommendations (e.g. Binding Death Benefit Nominations)

Now, as there are NUMEROUS industry funds that do not charge for these advice topics please tell if this type of "basic" advice should be cross-subsidised? If your answer is in the affirmative, then please expand on how this differs from advisers in the past who received commissions from product providers? Also, please provide examples of non-industry fund providers who give free advice on all of the above topics?

Agent 86 did not suggest it was just intra-fund advice....

once again showing you your love for defending industry funds Hedware.

The issue is everyone is being charged for advice and (industry funds are the only ones) hamming on about grandfathered commissions should be gone not retail funds both the old style of commissions and intra-fund advice work exactly the same way.

Hedware wrote.. "If an industry fund decides to have an authorised adviser give financial advice to a member, then the member picks up the tab and not the fund".

I believe you are wrong on this. I truly believe it is subsidised by other members. Spoke to an Adviser at First State the other month - he manages 16ish advisers giving such advice. Seems to always recommend First State and has no idea on what the team of Advisers cost - as it is all paid for by all members. Conflicted?

Hedware, there are no other funds that operate like industry funds, that pay their planners from member fees, please correct me if I am wrong, and provide examples. AMP Et al for example, the clients need to pay directly for advice, and it is paid to the adviser from the client. AMP does not charge every member a membership fee and pay the planners from that. Clients pay a separate ASF. Advice is advice, be it simple or not, its still advice! Therefore everyone needs to play under the same rules, this carve out is just a joke. Surely you can see that.

I am with you on this - I support independent professional planners being paid for services tendered for and being paid by the clients.
I guess in the future there will be robo-financial advisors and the advent of this will impact of financial planners. Offshore robo-banking is delivering some competition to onshore banks and is expected to grow.
ASIC seems to define what is permissible as Intra-Fund advice and some of the suggestions made here are in excess of the ASIC ruling. When a firm such as AMP hosts or supports public briefings about investment to users of its products, then does that activity count as Intra-Fund advice? In the long run its is AMP clients who pay for these briefings.

Hedware wrote..."If an industry fund decides to have an authorised adviser give financial advice to a member, then the member picks up the tab and not the fund".

ASIC found/stumbled across...
"HostPlus is based in Melbourne and is licensed to provide financial services and act as trustee of specified superannuation funds." ASIC
"Following a complaint, ASIC investigated whether the telephone message contained a misleading representation that the advice service available to HostPlus members was ‘independent advice’. ASIC was concerned that HostPlus and IFS were not independent of each other because HostPlus employees were appointed as authorised representatives to provide financial advice under IFS’ Australian financial services license, HostPlus paid service fees to IFS for adviser services and at the relevant time, HostPlus was a shareholder of IFS’ ultimate holding company."

Hedware, care to run me through your logic/assumptions again? It seems your statements demonstrate a clear lack of knowledge and understanding.
I would also like to know what HostPlus gets for paying IFS for the Advice?
Any guess what product IFA recommended?
Do any of these arrangements within HostPlus represent "conflicted remuneration" in your mind?

Yes to me those arrangements are conflicted. ASIC at work and that's good.

Unfortunately Hedware it appears you have completely missed the point entirely in your commentary.
I was not referring to a comparison between low level or basic advice and comprehensive advice.
I also did not mention a restriction or exclusivity to industry funds at all.
I fully understand if an industry fund member wishes to seek more comprehensive advice they can engage an adviser.
Your response therefore appears to support the notion that charging an Intra Fund advice fee to every single member for low level or basic advice irrespective of whether they access or receive this low level or basic advice is ethically and morally acceptable and not deemed to be a fee for no service.
If, in your mind it's not a fee for no service, please explain exactly how charging someone for something they haven't received is in that member's best interest and how this practice does not breach the Trustee duties and responsibility to these members who are paying for something they have not used.
Please also explain why charging every single member of a fund a mandatory fee for services they may only access intermittently or not at all is not specifically defined as a retainer and therefore subject to individual member authorisation, FDS and Opt In requirements for that fee to continue to be deducted.
If the Intra-Fund advice fee is charged and the member has not received the services relevant to that fee, then the fund would need to cease charging that fee.
I look forward to your reply at your earliest convenience.

As you will know from my previous posts that I support the notion of independent professional financial advisors who charge a fee for service for work done for clients. Accordingly I do not sport grandfathered commissions where a fee is charged for no service. It is immaterial whether the client is a member of a retail or industry fund.
Grandfathered commissions are a lazy tax. There's plenty of lazy taxes at work people don't shop around when renewing utilities, etc. I guess in a capitalist society that's buyer beware. Grandfathered commissions are the same lazy tax but superannuation is far more complicated and future impacting than is an electricity provider. I guess in a capitalist society that's buyer beware.
But another problem with grandfathered commissions is that there is no improvement to the level and quality of financial advice. It's makes for lazy financial advisors.
Grandfathered commissions are charged at a higher rate than basic Intra Fund fees. What can be provided as Intra-Fund fees is listed by ASIC.
If Intra-Fund advice is basic then I see that basic advice is being little different to the advice that non-industry fund managers provide. But as you say it may well be different in practice.
Getting back to my belief in independent professional financial advisors, grandfathered commissions are not doing anything for the reputation of independent professional advisors in the wider world. The subtleties
you see are not seen by the general public. They see rip-offs. That's reason enough for grandfathered commissions to be decommissioned asap. Grandfathered commissions are a rip-off.

Hedware, again you have not addressed my question.
You have made your opinion very clear regarding grandfathered commissions to which I disagree with your analysis.
However, you have failed to make comment regarding the charging of Intra Fund advice fees for no service received.
Your analogy of grandfathered commissions being a "lazy tax" must also lead you directly to relate Intra Fund fees as being
" lazy fees".
Your terminology of " lazy" would relate to getting paid something for nothing and therefore a fund being paid a basic advice fee for the provision of nothing is very clearly lazy.
The point of my question was to ask if charging a fee to all members of a fund for the purpose of advice when no service or advice has been delivered, requested or received is ethically and morally acceptable.
It is impossible to argue this is not a fee for no service issue.
If you are advocating that grandfathered commissions should cease when service and advice is being provided and received, then you must also advocate that Intra Fund advice fees also cease even when basic advice has been provided.
You cant have it both ways.
What ASIC lists as acceptable as Intra Fund provided services is irrelevant.
Does ASIC state that it is acceptable to charge these fees when these services have not been provided ?
To argue that there is no improvement in the level and quality of financial advice regarding the payment of grandfathered commissions is not proven or substantiated at is a subjective opinion.
Just a simple yes or no to the question would be great.
Is it acceptable that Intra Fund advice fees are charged to members of a superannuation fund who do not access or receive these services?.....Yes or No ?

I dont know how Intra-Fund advice is delivered. Is it person-to-person? Does a general brochure on investment outlook count as Intra-Fund advice? Does information available on a fund web site qualify as Intra-Fund advice? ASIC has said what is Intra-Fund advice but seems a bit vague as to application.

Hedware why is it ok to charge every member of the fund for intra-fund (basic advice) if they don't use the service?

How is this not fee for no service?

Hostplus for example have 9 advisers listed and they have over a million members, they literally don't have enough advisers to even service 10,000 members yet every member is charged this fee for basic advice.

Intra fund fee's are not disclosed to anyone either and need to be decommission asap = Intra fund commissions are a rip-off...

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