Fees and Commission – The Usual Suspects
Just what the industry needs - another advertising campaign insinuating financial planners are bad, that they are liars and are likely to be doing something they aren’t telling you about.
In short, planners are criminals.
Where is this coming from? ASIC? IFSA? A shadowy government body which is all care and no responsibility? No, it’s the industry funds, here to save the consumer from the wicked financial planner.
Hot on the heels of “compare the pair,” which suggests industry funds perform better than funds which pay fees and commissions to advisers comes the usual suspects campaign being run by Industry Fund Financial Planning (IFFP).
The ad boasts that the advice business owned and run by IFFP doesn’t accept commissions and is therefore, compared to planners who do, not a criminal.
At brandmanagement, we suspect this new initiative has been designed to stop industry fund members leaking out the top of funds when they retire after deciding that industry funds are all very well when they are in the accumulation phase - but that retirement might be better suited to a more specilaist group or into a self managed super fund.
However, one of the biggest hurdles financial planners face in reaching out to the millions of Australians who don’t have a plan or planner, is that consumers are being educated by the media, and now, in a stunning move, the sources teaching them not to trust financial planners includes the financial planning industry itself.
Perception, as we all know, is a significant part of the buying reality for consumers and the financial planning industry is doing itself no favours by waging a war in full view of its customers.
Sandra says:
I totally support your point of view! Keep it up that way!
GlenStef says:
Hi, Thanks for article. Everytime like to read you.
Thanks
GlenStef
Aaron Thompson says:
Neil’s comment that the cost saving of $200,000 p.a. by moving into an industry fund from a retail fund is ridiculous (see my comment third from the top above and Neil’s following it immediately below) is typical of the denial that the industry is in.
There were clearly demonstrated and indisputable savings (on a multi-million dollar fund for over 100 employees) of around $100,000 p.a. on income protection insurance alone. Not only that but it had an “own” occupation – not “any occupation for which you are suitably qualified and experienced” definition of disability and coverage to age 65 instead of 5 years).
The other $100,000 was an estimate based on the normal fee differential for a retail fund – it was only an estimate as the retail fund concerned did not at the time have to fully disclose commissions (prior to full AFSR) and refused – surprise, surprise – to do so.
The suggestion that I am not intelligent enough to practice is more a reflection of Neil’s intellectual capacity than mine and does not add to the substance of the debate.
I have (amongst other qualifications):
- a joint B.Sc. (Hons.) in Civil Engineering and Economics (as top student of my year)
- a Masters in Accounting
- Tribeca’s (admittedly Mickey Mouse) Diploma of Financial Services (Financial Planning)
- was 2 units short of completing my Graduate Diploma of Financial Planning with FINSIA before I opted out
‘- in the process of completing my Masters in Petroleum Engineering instead
I can assure all concerned that with my back-ground I am more that capable of computing cost savings (it took hours on a spread-sheet going through over 100 individuals seperately), even if that doesn’t suit Neil’s purposes!
Aaron Thompson
Stephen Coghlan says:
I find this quite criminal that Industry funds can say they pay no commissions yet they pay there advisors large salaries y and bonus based on sales into their own funds.
They fail to mention that they invest in fund managers who charge performance bonuses up to and over 20% then receive a kick back.
Who is really creaming it on fees?
It’s aboput time the media looked at the real problems and stopped attacking the advisors. Advisors work on margins @1% when fund managers are working on 25%..
The media should be ashamed of itself for not bringing performance bonus into the spotlight..
Shame, Shame ,Shame.
Lets start getting the real story out there!!!
Keith L says:
Some of my clients pay fee for service but most are happy with commission so the fee for service argument for me is not an issue. I will do what my respective clients prefer, not what the media or some misguided public servant at ASIC tries to inflict upon the industry on the presumption that because commissions are involved the client’s needs and objectives will be ignored by planners. That client’s individual needs and objectives are ignored by industry funds standard offerings gets lost in this argument.
Industry funds as a group have shown themselves to be unprincipled and some of the information they serve up to their clients is either deficient or misleading. For example, I tried to obtain the asset allocation of a fund for a client recently and could not find the information on a particular fund’s web site. When I telephoned, the person I spoke with could not provide the information and to obtain it I was informed that I would have to make an appointment with a financial planner. Some service!
There is a place in the industry for simple, “one size fits all” superannuation funds but let them compete fairly and openly for their market share. They must, in my opinion, have the same degree of disclosure required of retail super funds and, in line with the philosophy of the freedom of (superannuation) choice legislation, planners we must be permitted to offer a similar, “no advice” superannuation product not requiring the generation of a SoA to those clients who seek a simple no frills solution. In other words, lets level the playing field by removing the legislative bias favouring industry funds.
Double A says:
There are a number of “old chestnuts” raised in this article, most of which are based on myths and propaganda.
Are Fees versus Commissions really the issue, or is what is the fair cost of advice, strategy and dare I say the appropriate products to suit the clients desired outcomes.
If someone charges 4.0% to 5.0% commission on an investment of say $300,000 and up, exhorbitant….in my opinion in this day and age, yes.
By the same token someone who charges a minimum fee for service of $3,300 for an investment up to say $150,000 exhorbitant….. in my opinion, yes.
Here where the major conflicts lay. Who says my opions right or wrong?
The words “DISCLOSURE” should be at the forefront of any commentary on the subject and ultimately the client should decide.
It’s like advice, some may be better than others due to experience in the business and education or the lack of it. In most cases the client will decide.
So how do we as an industry charge the “right” fee? How do you value the quality of the advice. How do you calculate the hourly rate and why don’t we all charge the same hourly rate?
How do you verify “billable hours”?, something that’s plagued both the Legal and Accounting fraternity ever since it was introduced.
Whether the sanctimonious promotors of fee for service like it or not there are flaws in their arguments that fees for service removes bias
The IFFP like so many others has said the Fee for service model will make us more professional, so OK, lets charge a fee (what ever that is) to give advice, charge a fee for SoA’s and placing investments, charge a fee for monitoring investments and finally charge a review fee. That way by charging fees along every step of the way,it makes us more professional? what “crock”
Does anyone out there think that those now charging a fee for service receive less revenue than they did when they received commission?
I think it’s an excuse to charge clients more quite frankly and does charging fees remove bias?
If you examine a number of Fund Manager owned Licenses, even though there is an industry/FPA standard based conflicts of interest, a review of their Licencee Approved List will show a dominance of their own Licensees platform and products.
Has anyone ever thought about when the client should make money??
Lets deal with the review fee as an isolated item. In most cases apart from changed personal circumstances, at review either one of two things has happened, the client either made or lost money. In 99.0% of the cases, client’s know before hand whether they made or lost money. I’m not sure why anyone would want to pay $500 -$600 at review to find out what they already know.
If you want limited investment choices, almost no advice, go with an industry fund.
If you want real financial advice, strategies, better asset allocation/fund managers in a wholesale platform where performance is measued more by long term performance rather than one year, then forget Industry Funds they don’t measure up.
As far as receiving trail brokerage is concerned, apart from receiving free annual reviews, my clients know that the more they make the more I make but at a far lower percentage, and no one is unhappy with that process because tha’s my job.
My clients also know they can generally contact me 24 hours a day (and some do from overseas) 7 days a week, that’s my price for the level of service I offer.
Someone please advise the Industry funds that the job of a Financial Planner is to grow and protect a clients assets, something they do very little of.
Sarah says:
To Andrew,
Some correct repsonses to your questions about IFFP.
What does their APL look like?
Like most dealer groups. Some in-house product along with the usual suspects such as CFS, UBS, Invesco etc etc (except they use wholesale products).
How do these advisers obtain independent research?
Like anyone, they research products individually and make appropriate recommendations.
How are they remunerated?
By salary, plus a bonus based on the amount of FEE INCOME they generate. IFFP is not a proft making business and is subsidised by other parts of the IFS business. It is their as an add-on service to industry fund members to retain.
IFFP planners do actively review client portfolios regularly, based on an hourly rate, which is STILL cheaper than the alternative AND this is encouraged by the employer.
Your figure of 99% of members being the default option is ridiculaous AND it does not take into account the large number of members that followed advice to STAY in that option.
IFP says:
Continued…
If you want to protect investors from advisers recommending Westpoint perhaps one way to go would be to introduce some proper securities analysis into PS146.
The Diploma of Financial Planning was a complete joke as far as its investment units. I feel really sorry for any client of an advisor whose knowledge is limited to what he or she gleaned from the DFP, advisors who know what a price to earnings ratio is… but really not much else!
CFP doesn’t work to improve the situation because it doesn’t contain much investment content (in fact it doesn’t really contain any investment content!)
So an adviser can do all the qualifications up to CFP and while they’ll know plenty about superannuation, estate planning, taxation and other important stuff, they’ll know very little about how to read a PDS, analyse risk, build portfolios, value stocks, ask the right questions of the BDM and others etc.
Am I suggesting that CFPs all become CFAs? No, not as such… but I think the core problem with Westpoint was that there are advisers out there who were dumb enough to not realise that it was really risky.
Moving everyone over to fee for service might improve the situation somewhat, but doesn’t deal with the underlying issue which is that many advisers have no idea how to research products properly because none of the courses that advisers are required to do actually teach these skills!
IFP says:
As scathing as I am of commissions, I think commissions were not the driving issue which led to the Westpoint scandal. The problem was incompetence.
All financial planners, including the ones who take commissions, want to build sustainable businesses. They also fear being sued for negligence, so even the most sociopathic adviser realises that he has to look after his clients in order to prevent them from major losses.
This means that even advisors who are driven purely by the desire to earn the highest commissions possible are going to avoid products which they think are going to go bust and wipe out their clients’ portfolios.
The problem with Westpoint was that there are a lot of advisers out there who were so inept at assessing risk that they put their clients into what was effectively unsecured debentures offered by two dollar companies.
Most of those advisers acted in good faith, believing that their clients were going to make high returns from them. High commissions were justifiable here by believing it was a “win/win” situation for both client and adviser.
After the fact of course we know that Westpoint was not actually a safe investment and everyone got burnt. I don’t think any of the advisers involved would recommend Westpoint if they had their time again, even if they got their commissions.
No Com says:
Who put their clients into Westpoint??????
Who is now avoiding responsibility for this disaster???????
When is the next Westpoint going to happen????
Yeah lets promote commissions, I’m sure all those who invested in the Westpoints of this world have great concern for Commissioned advisers concern about the value of their businesses.
IFP says:
Continued again: post 3/3
Weaven has been wholly unresponsive to these approaches, its much easier for him to say advisors are crooks for not using industry funds, rather than invest any time and money creating products which professional fee for service advisors are going to want to use.
Obviously development costs of industry funds lifting their game in the areas which matter to advisors exceed the costs of simply trying to undermine advisors.
I’m reminded of Upton Sinclair’s principle: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
I see that both in the financial planning industry among those people who refuse to acknowledge how rotten a remuneration method commissions can POTENTIALLY be, and with the Garry Weavens of this world who refuse to acknlowedge the possibility that advisors might not be using their products because their products aren’t really all that great, and prefer instead to characterise all financial planners as commission driven product sellers.
IFP says:
continued from above because the system won’t accept long posts:
However, industry funds aren’t much better. They’re creating their own in-house sales forces, financial planners who are just as restricted by their institutional masters as the advisors who work in the big 3 letter dealer groups.
I fail to see how they can claim to sit on a moral higher ground when talking about independence when they’re replicating the same tied distribution network model which has caused many of the problems in the FP industry.
I’ve tried to discuss industry funds, and why fee for service advisors aren’t using them, with Garry Weaven a number of times.
I’ve pointed out that among fee for service advisors industry funds still lack appeal because of their lack of facilities like advisor websites, dodgy old fashioned crediting and reserving accounting rather than modern best practice unit pricing, taxation which hands the benefits of franking credits to people who didn’t have money at risk in Australian shares, lack of research on the platforms and investment options, lack of useful features and reporting and data feeds into financial planning software etc.
IFP says:
I agree that the whole criminal angle they are taking is over the top, misleading and misses the point of what an advisor actually does for a client (advice, as opposed to sales).
There is a germ of truth to it though, I don’t think any reasonable person can deny that there is commission-driven product selling going on in the financial planning industry and that there are numerous second rate products out there that would go extinct through lack of distribution if not for the captive sales forces the product providers employ and commission payments.
But there are also large numbers of advisors, some of whom accept commissions, who are highly professional and don’t let commissions affect their judgement. I think its harder for commission based advisors to give good advice at all times because there remains an incentive, whether the advisor chases it or not, to push commission paying product instead of advising on debt reduction, industry funds etc.
Whether the conflict of interest always affects advice or not is beside the point though, the mere fact that the advisor is conflicted creates doubt. There are however advisors, fee for service and authorised by licensees who aren’t tied to product providers, who can honestly with their hands on their hearts say that their business is structured in a way which, to the maximum extent which is humanly possible, frees them from conflicts of interest and the advisor really makes the same income, for the same effort, regardless of what they recommend the client does. I don’t think asset based fees meet that criterion though.
Jo-Anne Bloch says:
I have been reading the blog comments with great interest. Whether you support commission or fee based advice, the fact is: the billboard used by IFFP is a concerning development. The FPA is concerned that the comments you make may well be correct and consumers will indeed take from the billboard:
1.That financial planners who are paid fees should be compared with criminals ie commission based financial planners;
2.That consumers should not trust financial planners;
3.That the financial planning industry itself accepts that consumers should not trust financial planners;
4.That there is something underhanded or hidden about commissions; and
5.That per se fixed fees are better (less criminal) than commissions.
Some facts:
1. Commission based advice is legal
2. Commission based planners conduct very professional businesses
3. The FPA’s Conflict of Interest Principles state very clearly what needs to be done to ensure good, transparent disclosure and process. For example, the commission must be agreed between the adviser and the client; it must be split between advice and product; it must be communicated regularly, at least annually; it can be switched off on agreement between adviser and client.
The only outcome of representations which do bring planners into disrepute is that consumers will be put off getting advice altogether. And from the other blog comments, I think we ALL agree that Australians who need/ want advice should be able to access it.
Let’s face it, we have in Australia a heavily regulated advice model and a costly one because of that. Let’s also accept that Australians might want to choose how they pay their adviser, and as long as they understand the cost, the benefit, and can see it regularly in dollar terms, then what is the problem?
Jo-Anne Bloch
Chief Executive Officer
Financial Planning Association
IFP says:
One thing I’ve never been able to stomach is the ubiquitous but appalling argument that small investors need commission based advisors because they can’t afford fee for service advisors.
Fee for service does not necessarily mean large up front fees. Advisors are perfectly capable of deferring fees in order to make them more “affordable”.
What they can’t do however is pull of a magic trick enabling them to more profitably service small clients by receiving more income than the client is paying via commissions. One dollar of commission costs the client just as much as one dollar of fees, and for that matter the advisor makes a dollar either way. (this ignores dealer fee splits which sometimes differ here…)
What commissions do enable advisors to do is accept remuneration long after the client has had anything to do with them. For this reason they are ideally suited to those advisors who see commissions as “passive income” which clients pay without realising it, long after they’ve forgotten that they even had an advisor.
All fee for service does is forces the advisor to clearly explain their remuneration to the client, who will then have to arrange to consciously pay it when invoiced (over time, if you prefer).
Obviously that has nothing to do with affordability, but its got everything to do with convincing the client that they are getting enough value to justify paying fees for it. Commissions sidestep this issue by hiding among the product fees and being taken out of the client’s account surreptitiously over many years.
They appear more affordable only because they don’t appear at all. People don’t object to paying fees if they forget they are even paying them.
IFP says:
My fee system is similar to that used by accountants and solicitors. I’m not quite pure hourly rates, because I vary my rate for the kind of work I’m doing, the value I’m adding, the difficulty and responsibility involved etc.
Asset based fees make no sense at all to me, because I’m a financial planner. As most people here would know, a financial planner is a person who assists clients with mapping out a strategy to achieve their goals. The strategy can, and does, and indeed must, take into account the client’s wealth creation, wealth protection and wealth succession goals.
Estate planning and asset protection are just as important as wealth creation, indeed if I was the world’s best wealth creation advisor but did a really bad job of protecting it and seeing that it was passed on to the right beneficiaries, my efforts would be wasted.
Financial planners, when confronted by a disgruntled client unhappy at their investment performance, invariably defend themselves by pointing out that it isn’t just the returns they get on the investments, but the whole strategy and structuring which they advise on which adds the most value. Several planners in the discussions above have made the same point, it is strategy not product where planners add value.
If its strategy and not product, why are advisors charging just for the product? That is what asset based fees are, a fee directly tied to the amount of money invested in products.
Clients are usually perceptive of this and when they see that the advisor is only charging them for products while throwing in strategy for free they begin to associate “free” with “worthless”. That’s why advisors get into arguments about fees during bear markets in the first place! If clients understood that investment products were just one of the many tools being employed as part of the implementation of their comprehensive strategy, they wouldn’t grumble so much about fees.
Dan says:
I can only hope that all the tyre kickers & penny pinchers in the world side with the industry funds and stay there. Maybe the ads are doing us a favour. My experience in the years I have been a Planner is that my best clients are the ones who trust me & follow my advice knowing it is unique to their personal situation. The relationship is one build on trust & mutual respect. They are the ones who achieve the most financial success.
The clients who a transfixed with penny pinching & getting advice for free will be disappointed later in life when they fail to achieve their goals. Let them live in their delusional world and live their boring lives.
Industry Funds, thanks for filtering the free loaders from coming to see me.
Andrew says:
The focus of the advertising campaign is comparing IFFP advisers to ALL other advisers, so maybe some questions need to be asked about their advisers.
Q. What does their APL look like and what products are they permitted to use?
A. Depends which Industry Fund the member is already in.
Q. How do these advisers obtain independent research about the funds the recommend?
A. They don’t.
Q. How are they remunerated.
A. By salary paid by IFFP which is funded with contributions made by the Industry Funds (a form of commission I guess).
Q. Without trails, are there requirements for IFFP advisers to review the advice they have provided to ensure it is still appropriate.
A. No. Not unless the client pays at an hourly rate. Let’s find out how many members pay for an annual review!
Q. Do IFFP advisers actively persue client reviews and is it encouraged by their employer?
A. No.
Q. Why are such a high proportion of Industry Fund members in the default fund (I’m not sure if I’m allowed to mention specific names but a recent report showed over 99% of members).
A. Because they can’t pay for the advice as a commission which is a deterent for them to pay for advice with their after tax money.
Maybe some of this could be used as amunition in any retaliatory advertising campaign.
johnp says:
great it was Equitable Life that claimed no commision sales.
wake up world we all need to get paid.
Pot and Kettle says:
The example below comes from the IFFP website – where they point out and detail how much better off someone might be by using one of their planners/
IFFP & IRIS Financial Planner
Entry Fee nil 2.0%
Manage Fee 1.2% 1.7% pa
Commission nil 2.0%
Serv Fee nil 1.1% pa
Plan Cost $840 $2,000 upfront
commission +
$22000 service fees
over 20 years
1.
Estimated – actual fees and commissions may be higher or lower
2.
Industry Fund Financial Planning charges for financial plans on the basis of the amount of time required to complete the plan. Actual cost could be higher or lower, based on the complexity of a client’s situation.
What do we all think does this reflect anyones reality?
Michael says:
Does Aaron Thomson realise that charging purely fee-for-service means that a large portion of the the public who most desperately need the help of a Financial Planner are not able to afford the advice. Commissions are one method by which the average punter can access advice which may aid them in achieving their financial goals. Wake up Aaron…ther is no completely right way to charge!
Craig says:
Jim, drugs may be ‘sold’ by a pharmacist but the drug dispensed is decided upon by the Doctor. This doctor often receives perks from pharmaceutical companies aimed specifically at encouraging him to prescribe a particlar product – generic substitutes may be offered by the pharmacist but the Dr has the ability to specify “No Substitution”.
Your reply therefore is error laden – like may of your earlier comments.
Accountants sell leases and yes we do advise on product but if we get paid the same regardless of the product we recommend (as I do) I am charging for the strategy advice not the product.
If you are proud to be a product salesman so be it, however some of us pride ourselves on more substantial accomplishments.
Tony says:
In my experience it is impossible to say that the fee for service model is better than the commission model or vice versa. The client will decide which payment method suits them best. At the end of the day the financial planner needs to be paid.
Industry funds are just another distribution channel. It would appear that they have adopted a business model that relies on bagging financial planners in order to retain or generate inflows. In my opinion if industry funds need to rubbish their competitors it shows that they have some real problems with their business model. Over the long term their strategy will back fire on them.
I would like to know who is funding their advertising campaigns since they are supposed to be not for profit. Something smells a little.
Andrew says:
There are several issues that need to be raised about fee for service and the way we get paid for it. Firstly if you charge on a time basis, then to generate more revenue then you have to spend more time. To double your income you need to raise your rates or double the billable time. The problem with this is it leads to “padding”. For example I say that I charge $500 per hour and Accountant B charges $250 per hour. He gets the client because of the costs he has quoted. I take 2 hours to do the job and I charge the Client $1,000 and I get him a $5,000 tax refund. Accountant B takes 8 hours to do the job and gets the client a $4000 refund. With the benefit of hindsight, where should the client have gone in the first place!
Second point. In Judo, you use the opponents own energy and balance, or lack thereof, to defeat him/her. To defeat defeat the Industry Funds ant planner attitudes all we need to say is that the ultimate outcome for the member is based on TWO factors, performance and cost. Their costs are low and thier performance has a wide range depending on which STRATEGY the member opts for. My question is,”Who is advising the member when it comes to selecting his investment mix? Who is advising the investor about whether he is investing enough to achieve his/her goals? Who is working out what levels of cover are appropriate for the individual member?” There has to be advice attached to the product or services and it is time that the industry funds advertised the fact that members SHOULD get advice but don’t expect it to be free.
Finally, it is essential that the government legislate to allow industry funds to have individual members accounts billed a flat fee for the member to seek professional retirement planning advice.
Brett Walker says:
Do we all agree that HOW you get paid is not very relevant so long as WHAT you get paid for is clearly understood by the client? Let’s not get too caught up in the arguments being put by IFFP and others, their “hook” with the public is the perception that commissions are somehow hidden and do not correlate well with value delivered. How do you measure value? Is an hourly fee any more a reflection of “value” than an asset based fee or a commission – so long as the client knows what they will be getting in terms of service as a trade off for that payment?I don’t think the “hook” is very accurate but it obviously has an emotional grab to it – the best way to respond must surely be to say (i) only use an adviser who is prepared to tie remuneration to service, (ii) forget about fees v.commissions – think “conflicts v. no conflicts” when it comes to an adviser’s ability to recommend strategies and products (including platforms) & (iii) SHOP AROUND.Reasonable basis and disclosure rules now in place criminalise most failures to give advice that is in the interests of clients. There will always be failures to comply with these rules but frankly the failures are microscopic when compared to the non-failures. That is, most advisers give a damn about giving clients decent service at least partly because to do otherwise would be commercial suicide.BUT, IFFP and others get a huge leg up when consumers are bombarded with dense and verbose FSGs and SOAs (and PDSs) that don’t make it easy to comprehend what is being offered and what it will cost – let alone what sorts of conflicts are at play.Take a leaf from the IFFP and keep the message simple: “Service is the key, how you pay for it is up to you, the client.”If interested go to http://www.independent-advice.com.au for more on this.
Henry Wallis says:
Bless me – what a pickle this all is – damed if you do and damned if you don’t.
I have a real sense that this is going to end up in court – either the FPA is going to say that this is false and misleading and complain about the advertisement – c’mon Joanne where is the complaint these blokes have put us in a police line up – what are they saying to the public? Or this site will get sued for pointing out that they have put us all in a police line up. I mean who appears in a police line up? The innocent?
scot says:
This add will only hurt the industry and has gone too far by implying criminality.
Any planner in the industry can accept a fee from a client, however clients often prefer to pay a commission. It is about consumer choice.
Ian says:
Industry Funds have there place but the arguments are somewhat one sided when it comes to advertising. For an advisor to fight that battle is financially impossible that’s why we pay fees to our industry associations in the hope that they will one day do something. Who else is there, as it was rightly pointed out in an earlier response, fund managers have a conflict of interest as they are looking to “substantial” mandates from the industry funds. The not for profit industry funds still seem to be able to pay market salaries for there CEO’s, staff and dare I say there planners so maybe we need to get rid of the share holders of the world that expect a return on there investments. Hold on, don’t industry funds look to investing in shares and property to make money for their members??
As a long time participant in this industry I have seen both fee for service and ongoing trail business’s work well. It is not the method of remuneration that counts but the ethics of the individual, his employer, his dealer that is the issue. I offer my clients both fee and trail and the predominately Mum and Dad investors largely elect the latter. Why, because if I do not deliver they have not paid for the “promise” and I can be sacked at any time and will not receive any further payment. I deliver on my promise I get rewarded. Do I consider myself to be professional, I like to think that I am and that I act like one but I will let my clients be the judge of that. We have all seen the statistics on how many people do not have wills, enduring powers of attorney or lodge their own tax returns and miss out on tax deductions. Not all can be attributed to not wanting to pay a “fee for service” but many can be. I would rather have a “time payment system” as an option for those who want it than see them go without.
Jim Herman says:
Funny, but all my strategies do involve product.
Drugs are sold through pharmacists.
Wills are charged for as a product.
I havent found a doctor or lawyer to sell me a lease yet.
Oh,they are also sold on a commission through a broker or banker.
We are salespeople who assist in strategy.
simon says:
Jim, yes in some cases we recommend product, but surely the main part of our job (and certainly where the client should get the most value) is advice on strategy. If a client comes along with a problem, it is the strategy that will go most of the way to solving it. Whether he uses product A or B will make very little (relative) difference to the outcome. It is that advice that we sell, just like a lawyer or a Doctor.. These professionals also sell products; Drugs, Wills, leases etc Does a car salesman give advice on how to get from A to B? How to drive in different types of traffic? Even whether the clients needs dictate a V8, sedan or a mini minor? No, his job is simply to sell a car to the customer. If that is the only service you offer your clients, then i’m sorry but you are not a Financial Planner.
Brett Walker says:
In 2nd last para, second line I meant “the relationship between service and remuneration”.
dennis says:
Well,
Clearly many of you have been brainwashed to the extent that you yourselves perpetuate the myth of being taken as professionals requires fee for service. I just cant figure out how it is acceptable for product providers to work on percentages of FUM (MER) and we shouldnt. Why dont the product providers work on fee for service? If you can answer that then maybe I will also move towards fee for service and happily devalue my business. Please I am only joking. If you truly believe it is better then come and work for me as I need staff that are easy to manipulate.
Brett Walker says:
I think transparency of the relationship between service and remuneration is a key issue to be addressed, along with the education of customers about the vertically integrated nature of the industry and the role many advisers are forced/cajoled/encouraged to play in propping up distribution for institutional parents.
ASIC’s definition of “independence” is extremely unhelpful and basically stops ostensibly unbiased advisers from competing on a level playing field with those who are clearly not.
IFFP’s attempt to make the focus “fees v. commission” muddies the water again. Transparency of the relationship between service and advice AND the lack of any motivation to favour one platform/product over another (or a commitment to clearly spell this potential conflict out to the customer) should be the response from industry.
If interested go to http://www.independent-advice.com.au for more on this.
David Harrison says:
if the FPA and/or ASIC let industry super funds run adds on that theme then you would really have to wonder what their purpose is…their current adds are misleading enough…..dont hear people complaining about returns from Geared share funds within super…yet their fees are 2-3 times higher than industry funds…so are the returns though……also interesting that industry funds outsource funds management to fund managers…and guess how they pay them…yep by a percentage of FUM and not a fee for service…but nobody has picked them up on it…also how are industry super funds paying for these adds…not with the $1 per week member fee cos it isnt enough…i have asked them in writing to explain this but they are refusing to answer and instead refer me to the PDS that doesnt give any idea of the answer at all……the FPA really should spend a few dollars and bring these facts out there….
Jim Herman says:
Real estate salesmen deal with products.
Car salesman deal with products.
Insurance salesmen deal with products.
This is not true for lawyers,doctors,accountants.
I can never understand why commissions are so widely talked about.
They are part of all sales processes.
Sorry fellas we are salesmen who give advice on product.
Robert says:
This is the first public crack at IFS and their attack on the industry I have ever seen – I can’t imagine its going to be up there for long – what do you bet lawyers give them a call within the day. The Unions are very thin skinned when it comes to criticisim – used to dishing ot out but not taking it. Good luck boys.
Duncan says:
Paying for advice via commission can sometimes actually end up saving a client money. For instance, why should a client be forced to pay after tax money for superannuation planning advice when a commission payment from a superannuation contribution could essentially be paid using pre-tax dollars?
Tom says:
Simon, Well done. Here in lies the issue we wish to be treated as a profession but not willing to charge like one.
Peter 2 says:
It would be very interesting to confront this Industry Funds Head and ask him to explain some of the anomalies in industry funds. For example:
1. Why do some funds not pay Planners Commissions, yet when a member wants advice, they send them to see a Planner.
2. Why they are prepared to offer discounted risk cover for say Life and TPD, but in some cases not TSC.
3. Why risk cover diminshes with age – of what real value is that with mortgages etc taking longer to pay off and are usually much higher than the maximum insurance they can get.
4. Why, with some funds, if the member wants higher levels of risk cover, they can apply for it under the same standards and underwriting as with public offer funds and premium prices as well!
5. Why do they allow employer’s or admin staff to select the member’s asset class selection when it may be nothing like the member’s risk profile.
6. Why some industry funds call underlying funds Balanced when they are nothing like Balanced etc
7. Not all offer Binding Beneficiaries.
and so on – I am sure you get my drift!
I’d love to sit in on a publicly aired answer and question session about these things and the miriad of other anomalies. Then after it has all been said and done, just ask him a further question:
By implication, your advertising suggests that you have a better offer for your members and that you have their interests at heart. But … how can industry funds claim this is true, when these are the anomalies they allow to exist?
I’d like to see some hard hitting stuff get out to the media. It’s about time we stopped being the nice boys.
Peter says:
It never ceases to amaze me that this type of stupid comment goes relatively unchallenged by the FPA and similar groups. I believe that by only complaining amongst ourselves, we are seen as accepting these sorts of comments and therefore by the lack of action on our part, must be guilty. How many planners would love to go full Fee for Advice and probably do? Surely this gives the client an option, do I proceed or not? Unfortunately, the choice is usually one of “I can;t afford it” not one of “I am not paying the Financial Adviser!”
Secondly, the average planners hands are tied due to restrictions placed on them by their Dealer Groups as to what they can and can’t say to the media. Consequently they are very reliant on what their representative bodies are prepared to do. Usually nothing or insufficient, despite what the FPA says!
simon says:
Unfortunately our industry will continue to struggle as long as planners like Dennis continue thinking along these lines. Apparenntly the industry wants to be seen as a Profession like Accountants, Solicitors and Doctors, but not at the cost of having our businesses valued the same way. No, no, no. please keep those “sticky” commissions coming in on product sales to keep our business values high. Dennis doesn’t want to see our commission paying “industry” “reduced” to charging fees. Personally I would like to see it “elevated” to a fee charging “profession”.
Rob says:
Aaron that is a very uneducated comment. Commissions are simply another method of payment for services provided. Commissions come from the members account. Fee for service can come from a members account or from their wallet. The truth is that a whole lot of people can not afford or do not want to pay fee for service because it requires a one off payment which in some cases can be too high. Instead many people choose to have their payment deducted from their account over a period of time. If we force everyone onto fee for service you will reduce the affordability of advice for a whole lot of people. I think everyone agrees that this would be a step in the wrong direction – people need advice. I for one don’t want to pay for my financial advice like I do my lawyer. I can’t afford it.
Jason says:
Aaron,
It may well serve you to gain some experience and knowledge before making such a blanket statement. In my experience, I have found that proper planning can save individuals 100s of thousands of dollars, with a focus on strategy not product. Transparency in the industry is still required; from all players including the industry funds.
Jim Herman says:
It appears to me that the non industry super funds are fearful of upsetting the industry funds.I suspect that this is because of a conflict of interest which involves the investment of the industry funds FUM.Otherwise they would fight fire with fire.Make no mistake, these bodies are being given a saloon passage by the businesses that are meant to be supporting us.
Neil says:
Dear Aaron,
Your claim that moving someone to an industry fund saved tham $200,000 per annum is ridiculous.
Its no wonder you are not practicing. You dont have enough intelligence to do so.
Aaron Thompson says:
I recently qualified as a financial planner but have not taken up a job offer in the industry because of my concern the commission driven nature of the business.
I personally experienced how moving a prior employers super fund to an industry fund saved us $200,000 p.a. in excessive fees and insurance charges – and we got demonstrably better insurance and investment performance in the process.
In the industry wants to be seen as professional and honest – and I acknowledge that many planners are – then it’s about time that it goes fee for service only with no commissions tainting advice given. If it were my call I’d legislate for this. To argue anything else is transparently self-interest and that’s why the industry funds are gaining traction – the truth will always out – and only those with their snouts in the trough have something to fear.
Dennis Carr says:
In all my years as a businessman i have never seen such an attack on an industry. It is as if there is not enough to go around where clearly there is. It is obvious to me that there is a groundswell to destabilise and reduce the strength of the financial planner. By reducing the planner to charging fees rather than receiving commissions is apparantly better for all concerned. For those who are hoodwinked into believing this it does two things, one, reduce the power of the distribution channel which sooner or later will render them obsolite and in turn be like accountants or solicitors who have to charge for their time which in turn will mean that their business will then be worth a whole lot less. While we receive commission or sticky money our business is worth 3-4 times income. if we work on fees it will be worth probably 1-2 times income like a solicitor or accountant. Why is it that in every other industry manufacturers pay for shelf space whereas in our industry product manufacturers get a free ride on our recomended lists. I think we should have an industry body that protects financial planners because all I see is that all industry bodies side with the product producers not the distribution channel which in fact does a lot more in developing the industry.
Danny Maher says:
As a professional Fee for service planner I take offence at the Industry fund claims about planners. I conducted my own “Shadow shop” of both Qsuper and Industry fund financial planning and “Shock Horror” they both offer their own multi manager non super managed funds. Nowhere was it disclosed that there could be a potential conflict of interest in that their planners may recommend these funds. No one could answer the question either whether these funds are run on a Not for profit basis either. A question for Mr Weaven – Do the fees generated by the Industry fund managed funds assist in paying the wages of the employed financial planners?