The Australian Government Treasury has put forward an argument for the preservation of the current remuneration system in the financial services industry, saying less affluent consumers would be the most adversely affected by the banning of certain fees and commissions.
In its submission to the parliamentary inquiry into financial services and products, Treasury said banning certain fees and commissions paid to financial planners would “eliminate a source of conflicts of interest, or perceived conflicts of interest”, remove an element of product bias and better align the motives of advisers with their clients.
Fee service-based arrangements would also force product providers to focus more on the quality and price of products rather than on adviser remuneration.
But despite these clear benefits, Treasury acknowledged that these changes would “fundamentally affect” the industry.
“The current commission system is part of the broader construction and operation of the financial services industry,” the Treasury submission stated.
“The requirement for a fee-only structure could contract the advice market and this contraction may fall largely on less affluent clients who are unable to pay upfront fees. Some clients may be unwilling to pay upfront fees, in particular in cases where smaller investments are involved,” Treasury’s submission stated.
“Even if outcomes are broadly the same, it would be a difficult perception change for clients paying upfront fees.”
Furthermore, Treasury argued there would likely be increased compliance requirements as a result of the need to introduce of new systems and procedures.
“Increase in compliance cost may increase the price of advice, affecting access to advice,” Treasury said.
The Australian Securities and Investments Commission, by comparison, believes while the removal of all asset-based fees and commissions would cause some consolidation in the advice industry, it would be unlikely to increase the cost of advice, Treasury said.
