Do you support Ripoll Inquiry Recommendation 4, regarding ceasing payments from product manufacturers to financial advisers?
- No (81%)
- Yes (17%)
- Not sure (1%)
Advisers have zero’d in on the commission debate as the key issue stemming from the 11 Recommendations handed down by the Ripoll Inquiry into Financial Products and Services in Australia.
Recommendation 4, on ‘ceasing payments from product manufacturers to financial advisers‘, has attracted the most interest from the advisers. 71% of respondents in the latest riskinfo poll support some, but not all, of the Inquiry’s recommendations, with the most opposition being directed at Recommendation 4.
We are now asking advisers a more specific question:
Do you support Ripoll Inquiry Recommendation 4, regarding ceasing payments from product manufacturers to financial advisers?
We qualify this poll question by making an assumption that Recommendation 5, on the future tax deductibility of financial advice, will be implemented.
Make your voice heard by voting on this question and add your comments, bearing in mind the industry and government are being encouraged to consult with each other to develop a solution to the ‘adviser remuneration question.’
Add your comment now
32 Comments
Payments should still be allowed to be made via the product manufacturer, but directly from the clients funds with transperancy on the clients statements. I agree that all hidden trails, overides etc should be abolished.
I also believe that advsier service fees that are paid from the clients account should be done so by seperate client authority provided to the product provider, which should be renewed every 2 years. This kind of approach may provide clients with some solice that if they are not receiving ongoing advice, then the fee will drop off.
The big picture- Advisors (and advisor support businesses/dealerships) are running businesses and businesses need profit to opperate!! This profit can be spread to a few at a large cost or many at a small cost.
Small trails and service fees support the ongoing viabilty of our businesses so that whenever a client needs help- we are there and viable to provide it. Client’s that decline fees will still come and demand help as quickly as a client paying regular service fees/ and complain (litigate) when they have not recieved advice (that they wont pay for).
Who are we kidding with this debate- the real enemies are those making commission and “financial planner” a dirty word.
people need to have a chioice of payment-as long as people understand the value of the advice the payment is not relevant-abolishing commisions means fewer people will be able to afford to see a planner
This debate is an absolute waste of time. As long as the client fully understands what his total fees are it doesn’t matter how we are renumerated. I agree with Anon2.
Where does this debate end ? Are supermarkets going to tell us how much profit they make when we buy groceries? How much a car salesman makes when he sells a car ? What the tradie adds to goods he supplies? Who cares ? If I know what it is going to fully cost me and I accept it then what he earns is irrelevant.
The one thing I would support is a capping of Entry fees to say 4.4% and FUM at say 0.66% at the PDS level to avoid situations like the STORM debacle.
If commission payments are ceased from risk products there will be a massive under insurance issue in Australia and people would never be insured due to not being able to afford the fee to get it implemented.Risk Insurance was not apart of the Storm Financial incident and should remain as a type of adviser remueration for finding risk solutions for the community.
Mark’s idea of a fee that can be turned on and off is unworkable. Would a union or the FPA accept a situation where you are a member but you only pay your subs when you ‘feel’ you are getting service? They wouldn’t stay in existence very long! Further, would all our PI requirements and liability to the client cease when they turn the fee off?? I doubt it, so once again we’ll have all the responsibilty, but no remuneration. Legislate a set level of commission - problem solved. That is if the real reason is supposed product bias, which we all know it isn’t - it’s industry funds and their labour party backed dream of controlling all superannuation in this country.
Disclosure does not solve the problem…working on behalf of the client does (and not a 3rd party who is paying you).
Australia has an under-insurance problems…some of this could stem from the poor rep that the old INSURANCE SALESMEN have ?…but in reality it is MORE due to ignorance and hence a general lack of understanding…by the public.
It is education and not commission that will improve the level of cover Australians have.
We charge fees for RISK ADVICE and rebate 100% of the commission and we manage to get clients to sign up…and these are no HNW clients - we just explain to them the need - and due to the lower premium our upfront fees are usually repaid after one or two years of discounted premium…the client pays us a flat fee for reviews…no fee = no service/advice as it should be.
Hence this debate is not a waste of time - but an opportunity to look at other ways to do business…and possibly more sustainable ways.
All the best for Christmas and NY!
The whole ‘Ripoll’ thing is more relevant to investment business than insurance business. Why don’t they simplify the ‘fees & charges’ section of all PDS’, including the industry funds; who seem to spend a fair bit on advertising, when they promote that they have ‘no fees’.
Is it just my perecption or is it that this was originally driven by the paid staff at the FPA.
It’s like the FPA has been infiltrated by a combination of the people at Choice magazine, the ACCC and Jeremy Cooper’s Staff - all getting paid by us to get us to do more work for more people for less money and more risk.
All over the world people get paid for work in different ways. Our clients are happy to pay us in the form of commission as they recognise that we earn nothing from those cases that do not proceed. Our cleints prefer us to take the commission risk rather than for them to pay a fee during their period of investigation. Further, the cost of our attempting to collect fees from clients who decide not to take up what we offer or cannot get through the hoops to obtian the polices, is huge and the end results are in most cases a failure, if a deal was not completed(sold). Say what you like, we offer sales and service. Most sales are paid by commission and service by a fee. A doctor offers a service but the chemist sells the end product that that the doctor prescribes. The chemists’/pharmacists’ earnings are made up of fees for checking the scrips, but the major earnings are a percentage of the sales price. This is called a markup/profit/commission and is used to pay for his staff, rent and other expenses. He only profits if he gets the price right. The client can complain if the scrip is wrongly issued but cannot get a refund if the medicine does not work. In the financial world, there is no perfect solution. Let each man decide how he wants to work and let his clients decide how they want to pay.
Whilst we have a fiduciary duty to the client,and responsibility under our PI.insurance we should continue to be paid–by the client of course.The mechanism to achieve this object is commission or trail.The alternative could be the small claims courts should the client refuse to pay for services.
It is no surprise that the results show an overwhelming opinion to retain commission.
It is no surprise that this flies in the face of the alleged result from the FPA. This organization claims to be the peak body represnting advisers yet this so called peak body claimed that the majority of advisers wanted to scrap commissions. What a load of tripe.
The FPA appears to again have waited in the wings, come to their own conclusion based on a few, and then put that conclusion forth claiming it is the view of the majority.
They do not deserve any support from any advisers.
I’d rather be paying a 0.50% commission than a 1.0% fee anytime!
Once the have capitulated and charge only fees, the next Media/Industry Fund assault will be on the quantum of fees being charged. What an Adviser and Client agree is a fair remuneration for the service and advice provided is no business of anybody elses!
I think that we should all keep cool heads and wait until we see the Henry tax review and The Cooper Superannuation recommendation.
It appears that Mr Cooper will take a much harsher attitude to the way that advisers will be remunerated than the Rippoll recommendations.
I fear that some recommendations will be based more on emotion, agenda of Industry funds, ignorance and that the current politicians may feel that there will be political capital to “slaughter” Financial advisers.
I recall in the lead up to FSR, that the FPA President at the time was adamant that Risk writers be included with Financial planners.There is still a wide gap of ignorance concerning what is required to promate all aspects of Life insurances and I believe it is the same today as it has always been , that generally, Life insurances are sold and not bought.
One must also consider that other professions will also be affected such as Mortgage brokers , General Insurance Brokers and possibly Real Estate agents.
Hopefully the baby will not be thrown out with the bath water and common sense will prevail, no doubt there will be a lagre amount of lobbying, as for many insurers their make up of risk business is around 75% from the likes of us.
Over the last 22 years I have helped many clients with small super account balances consolidate and accumulate for their retirement. Without my level of support these people would not possibly be able to access qualified advice. The detractors of commissions are predominantly the planners who would not offer to help these people as they do not have enough investable funds to pay their huge FEE upfront.
It is patently misguided for anyone to say risk product commission should be banned. How are consumers going to view having to pay twice for their income protection or trauma cover - once in a $1,000+ fee to the adviser and again for their first yearly premium of $1000+ ??? The word underinsurance will be a mild desription if commissions are removed from risk policies - it would be immoral to price insurance out of reach of so many consumers. A solution for conflicts of interest would be this: mandate that ALL insurers pay the same amount of risk commission across the particular product range. There’s a solution I don’t think many have considered before! There is absolutely NO WAY that the consumers who really need it are going to pay fees to simply implement insurance. Enough of this madness and chin-wagging. All it is doing is helping pollies and plutocrats justify there jobs. Let’s get on with helping Australians protect themselves - and let’s do it knowing our businesses are safe!!
For more than 20 years I have been working with and advising mainly middle to lower income clients as well as some in a higher income bracket. At no time have I been asked how much I earn or how much my recommendations will cost the person receiving advice or product. When I have raised the issue with clients the reply has generally been “It does not concern me/us” or “What you earn is none of my/our business” or words to this effect.
However, I know that if I were to suggest potential clients pay for advice there would be a “cooling off period” followed by outright refusal and no business.
Whatever happened to industry self regulation and the Financial Services Reform Act of 2004? We should not be having this discussion now. Put the “do gooders” and industry fund managers back in their boxes and forget them. Their “not for profit” stance is a farce.
No surprise as to who are writing these comments (advisers of course. DUH!!!! )
Excuse me but I had a super investment for many years however unknown to myself discovered I was paying an annual trail amount to some adviser I had never heard of. There are many investors like myself who have been paying these commissions for years and never even heard of their so called adviser.
Recently I tried investing into a platform type super product and was told ‘I HAD’ to have an adviser in order to invest.
I am also aware of many occasions where the adviser has put the client into a specific fee type product simply because the of the higher commission rate (this has happened to many elderly pensioners).
All the commission is asking is that you dislose ‘ALL’ your fees that you are charging and that the client is aware and most importantly ‘AGREES’ to this.
Why is this so hard?????
Consumers need our very dedicated and personal commitment in the product/service chain.
By all means give them choice and leave the Adviser to secure. It is the media zealots and the Industry funds driving the debate, not the consumer. Stop stealing our lawful oxygen.
As many other inquiries Government has cnoducted in the past, they are always reacting to a situation instead of responding to changing environment.
Is there any reason why real estate agent’s big fat commission ought to be maintained but not financial advisors?
No reason except that massive stuffs relating to some minority financial planners happens to push the button and government suddenly decided to change the entire landscape of financial planning industry.
Good job !?$#
Life insurance advice is complex and do not see clients being prepared to pay the same fee for what it takes to put together a wealth accumulation strategy … in addition to the life insurer’s premium. From experience they’re happy with remuneration being built into the premium.
It is a legal requirement to disclose brokerage and we’ve had no complaints. Who is causing this fuss? Is this just another case of bureaucracy gone mad?
However, if a fee for insurance service was approved, I envisage client’s will not receive the ongoing service that is required to ensure their protection strategy remains appropriate to their ever changing needs, or provide invaluable assistance at time of claim. Life insurance policies are complicated and quite often so are insurer’s claim process. How can you put a price on that?
I and a few others recently felt the wrath of the economic downturn via a large drop in our Superannuation accounts. OK so the adviser can’t do anything about the downturn but as of his advice we invested in a managed fund share type portfolio. For of the advice we received part was charged an initial advice fee of some 3% of our investment, this adviser also received a monthly advice (trail) fee amount. What really annoys me about this is we invested on his advice, paid him a monthly advice fee and not once did he advise us to move our funds into a more secure investment like a CASH or Guaranteed portfolio in the 9 months our funds withered. If investors are expected to pay an ongoing fee then they should get that ongoing service. If I pay you monthly then I want ‘quality’ advice and I expect this monthly. Although we are still awaiting an outcome if we can receive any of these fees back,I will never ever use an adviser again and would never ever recommend a financial adviser to anyone I know.
Go Ripoll
The wrong question has been asked here as there has been no attempt to separate investment product providers from life insurance product providers. If you were to ask question again separating these two advice stream I would suspect you would get a significantly different outcome…but hey that’s just my opinion.
I’d be interested if other readers agree or disagree with me
RegardIng the comment ‘It is the media zealots and the Industry funds driving the debate, not the consumer’,well, I am a consumer and I want the debate.
I do not want to have to pay fees for what is mostly useless information
From what I have mostly read in these
comments, it is mainly scared advisers who do not want the debate. Consumers do want it!
The elephant in the room when it comes to Life Insurance is that it needs to be sold. For consumers Insurance is Important but not urgent they only buy it when some other event or person prompts them to. The insurers know that life insurance needs to be sold and that advertising and a flash web site will not deliver the returns the independent Financial advisor “IFA” channel does. The quality and affordability of life insurance product has improved significantly in the past 9 years as insurers have to compete for the recommendation of IFA’s on price and quality not how much commission they pay. If vendors cannot remunerate the IFA channel with commission it will wither and die. We could return to the bad old days with advisers who may not be paid commission but only recommend products sold by the vendor who ultimately pays their salary.
Clients clearly see how much commissions are charged through disclosure statements and SOA’s. If a client is not happy with the fee then they wont proceed. simple! Why change it, every time there is a downturn in the market we hear from the bureaucrats, but never a word from the regulators when the market is strong.
Abolishing commission and switching to fee-based service only will make financial advice unavailable to many australian’s who can’t afford the fixed flat fees.
I would like to address some of the consumers concerns:
Darren, I can understand that you would feel ripped off seeing your asset value decrease during the global financial crisis. Unfortunately as advisers we don’t have a crystal ball and we cannot accurately forecast the future, but what I do know is that if your adviser would have placed your funds into cash that you would have missed the 40% return in the market and you would not be happy about that. As an adviser I tell my clients that the plan I put in place is for the long term, there will be ups and downs along the way but our main focus is on growth their asset base over the long term. I will not participate in trying to “Time” the markets. If a client wants to focus on short term gains then I suggest they bet on the horses, buy lotto tickets or something like that because technically you are taking a punt.
Steve, I am sure you get paid in your line of work, we are not different, we just want to be paid for the advice we give and the benefits we provide, that is not too much to ask, I don’t think.
From an investment point of view we need to look at coming up with a service offering, detailing what we are providing the client for the fees we are charging. On the risk side of thing very few clients will pay for this advice and as such the under insurance problem in Australia will continue.
The answer is very simple, no commission, no advisers, no industry. Simple reason, most people do not want to write a cheque to pay us but would be OK with a disclosed commission paid by the financial institution or insurance company.
I agree with Alan clients do not like writing cheques and have no idea how much work is required when we return to our office. This could become the beginning of distrust, not a good thing especialy if you had a trusting relationship for many years.
Ripoll and the current govt., I thought were supporters of the average mum and dads across our country. These people probably constitute 80 - 90% of the financial services market and most do not have the surplus financial capacity to pay fees from sources outside the product ie most of them are cash flow short. The (Labour govt.)move to eliminate adviser remuneration from product deductions (whether you call it a commission or fee makes no difference) will just result in these people being deinied the advice and help that they so desparately need and should be able to continue to access. I am all for adviser remuneration being transparent but the method and source of payment should be the decision of the client not our politicians or bureaucrats.
Where has it been detailed what we mean by a commission? That seems to be what we are lacking in this debate. I work with advisers who negotiate an ongoing fee with their clients, compensate with whatever they may receive that is built into the product, and then charge the balance as an adviser service fee (taken from their investment) - I see nothing wrong with that. Let’s not forget that advisers are selling an intangible service - if we do not allow them the flexibility to be remunerated for maintaining insurance cover and growing their clients’ wealth, then who is going to do it? We have an underinsurance problem and rising household debt levels - financial advisers have an important role in the economy and we need to find the best people to sell this intangible service. Let them be remunerated as they (and their clients) see fit!