Advice commissions – the truth that dare not speak its name
ANALYSIS
Franklin Templeton chief executive, Jenny Johnson caused a minor stir this week by suggesting that, in terms of the affordable delivery of financial advice, Australia might have been better served by retaining access to commissions-based advice delivery.
Johnson’s comments to a Morningstar forum created the stir because, in fact, she said what has remained largely unspoken in the Australian financial services sector for nearly 15 years – that in the absence of commissions financial advice became unaffordable for around 60% of the population.
But it is also worth noting that few, if any, of the submissions to the Quality of Advice Review (QAR), which grew out of the original concept of making advice more affordable, actually canvassed the virtues of commissions-based arrangements. That was because everyone knows that, politically, commissions are a no-go zone on both sides of Australian politics.
The Australian Labor Party (ALP) pushed through the legislative changes which outlawed commissions and the Liberal/National Party did very little to change that fact despite being in power for nearly a decade.
Those who have been around the Australian financial services industry over the past two or three decades would recognise that the banning of commission-based remuneration represented one of the most significant victories achieved by the industry superannuation funds movement.
Recognising commissions as being a foundational element of the commercial models of the major banks, insurance companies and retail funds, the industry funds campaigned assiduously for the banning of advice commissions on the basis that all advice linked to product was and is conflicted. In 2012 they secured that victory in the form of the Future of Financial Advice (FoFA) legislation which banned both commissions and volume-based payments.
More than a decade later, it is clear that FoFA destroyed the commercial raison d’etre for the banks to venture into financial advice along with the commercial models which had underpinned the profitability of financial planning dealer groups for decades.
An analysis of the impact of a decade of FoFA will tell you the following:
- The banks have exited financial advice
- AMP’s advice business has been totally restructured
- Multiple mid-sized advice licensees have merged or exited
- The number of orphaned clients has more than doubled
And worth remembering that all these things happened before the impact of the Life Insurance Framework (LIF) and the Financial Adviser Standards and Ethics Authority (FASEA) regime.
Yet, with the exception of Johnson and a few other lonely voices, no one has actually mentioned commissions because they know there is no political or commercial advantage to be gained by doing so.
A decade after the introduction of the FoFA legislation it is worth reflecting which group is likely to be most advantaged by the Government’s curated adoption of the QAR final recommendations – superannuation funds.
The same superannuation funds which campaigned so hard against commission-based remuneration will be the vehicles via which the Government seeks to deliver affordable financial advice.
Trade unions have always recognised politics as being a long game.
The ongoing “intrafund advice” commissions charged to Industry Super Fund members (often charged without their knowledge & without their consent) is a vertically integrated, highly conflicted form on ongoing remuneration. This “advice” is usually never received by most members due to its collective nature..
Probably some of the most on point comments I’ve heard in last 15 years. “banning of commission-based remuneration represented one of the most significant victories achieved by the industry superannuation funds movement”
“banning of advice commissions on the basis that all advice linked to product was and is conflicted”
Industry Super Australia has the hide of $3 Trillion elephants.
The same hypocrites that charge every member HIDDEN COMMISSIONS, with 90% of those members getting NO Service.
QAR wants to expand the same HIDDEN COMMISSIONS on a massive basis.
Via vertically owned call centre jockeys that are uneducated, unqualified and selling on volume single products all paid for via COMMISSIONS !!!!!!!!
What’s the total $$$$$ Industry Super charge pa in HIDDEN COMMISSIONS to all members ???? Mike, please research that figure.
I don’t especially like commissions for investment but the reality is it suits the majority (by number not $$) of investors. As per the other two comments commissions still exist in the union controlled funds and QAR wants to expand it. Yet again the playing field is NOT EVEN.
Only a moron could not forecast the explosion in orphan clients and a significant decrease in regular Australians getting advice.
Institutional conflict is allowed and thrives under the noses of an incompetent, ignorant and biased regulator.
Can we PLEASE just have an equitable and balanced system that is fair for all participants. Oh look there’s a pig flying out the window!
Oh wow out my window is a whole drove of pigs flying past, ASIC piggy, AFCA piggy, FARSEA piggy, LIF piggy, FOFA piggy, FDS piggy, SoA Piggy, BID piggy, TPB piggy, ISA piggy and don’t forget here comes QAR piggy.
Imagine, as an Adviser, if you could take a commission from a clients product in exchange for simple general advice. Where have I seen this before?…. Not advisers, because that would be illegal now. Ohh yeah, its fine if its Industry Super.
Even better, its not only a Commission.
It’s a HIDDEN COMMISSION.
You make a rather excellent point.