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Professional Investment Services (PIS) is considering placing a cap on the commissions its advisers can receive for recommending investment products.
PIS managing director Grahame Evans told Money Management the proposal would be under review at the group’s advisory council meeting this week, and discussed with senior advisers on Friday.
Evans said PIS is currently in a number of discussions about “trying to remove any bias or incentive for people in a number of different categories of investment”. He believes the group’s representatives are “comfortable” with the proposition.
“We’ve been indicating [to our representatives] that we’re looking to put restrictions on certain products, but we
need to get the fund managers across the line,” Evans said.
“Initially that’s done by discussion and negotiation, but if we can’t get them to go that way we will just enforce it from our own end.”
Evans said PIS could enforce the cap either by restricting its approved product list (APL) to products that comply with the requirement, or setting a maximum commission at a dealer group level, possibly around 4 per cent for upfront payments and 2 per cent ongoing.
He added that he doesn’t believe “any [commission] in the marketplace these days should be greater than 4 per cent”. The average upfront fee and/or commission received by PIS advisers over the past 12 months was 1.47 per cent, according to Evans. The group’s in-house product provider, All Star Funds, pays no commissions to advisers.
Evans said the “key is making sure the adviser is not encouraged in any way to write one product over another”, — a marketing strategy some fund managers clearly don’t want to lose.
Evans is frustrated by product providers who are reluctant to reduce commission levels for planners, for fear of losing inflows into their own business.
“I’d rather [fund managers] actually accept the situation that the market does not consider [paying high commissions] appropriate any longer.”
Furthermore, while fund managers set the tone for commissions, it’s advisers who take the reputational hit.
“The fund manager isn’t the one that gets kicked in the bum when things go wrong — we are,” Evans said.
“That’s the thing that annoys me, they can sit there and play with their commission, but when things go wrong — it’s those dirty, greedy advisers who took the money.”
It’s possible that commissions may be eradicated altogether in the coming years, and the industry has moved to reduce commission payments by 2012, but Evans believes the issue must be managed in the interim.
“I can’t afford to wait until that time to adjust our strategy. Two years is a hell of a long time and we’re not prepared to let it go until such time that we’re forced to [make changes].”
