Steve Tucker’s views on commission-based advice have been called controversial. But, in reality, is he just following the well-trodden path to profits? Lynn Elsey investigates.
Meeting up with Steve Tucker in MLC’s Zen Den is a mixed metaphor in action.Balancing the calm, pebble-strewed aura of MLC’s third floor offices with one of the financial industry’s most outspoken, rabble rousing members takes a bit of mental gymnastics: The concept of nuance and MLC’s CEO are not often found in the same sentence.
But, in reality, Tucker’s beliefs about the role of commissions in financial advising are really not out of step with most managers; it’s all about good business.
SETTING THE STAGE
Tucker credits a whirlwind of circumstances three years ago as the maelstrom which thrust commission-based advising into the spotlight. He calls it the perfect storm, caused by “super funds hitting one trillion, the FSR and shadow shopping by the federal regulator. And the government began focusing on aging and super as they knew that people would need advice.”
And, according to Tucker, the media added a final blow, saying that “these guys [advisers] are crooks”.
The result was a critical look at the conflicts involved in linking financial advice and commissions. To Tucker the big issue was convincing the customer that financial planning had a professional backbone and that advice, when given free of any underlying conflicts and with full transparency, was of real value. He felt that addressing these issues would become more important to the customer, and therefore, lead to an increase in business.
Tucker says that the resulting legal and operational changes that came into place at this time were MLC’s starting point for change.
“We set out to see that our advisers didn’t just operate to the law, but operated above it.”
Tucker says that the driving force behind the organisation’s changes is what will differentiate MLC from the others?
“The answer,” he believes, “is quality, and how well-educated the team is.”
THE DRIVING FORCE
Tucker is unapologetic about the underlying reason behind his outspoken push for complete transparency of all fees and the need to move towards fee-based advice: Profit. Staying ahead of the game is the goal.
“Our job is to anticipate things, to stay competitive,” he says. “
We hope to get there first, a competitive advantage,” he continues, growing more animated as he leads into to one of the current more incendiary topics.
“For example, we don’t pay shelf space fees or volume rebates,” he exclaims.
The reason behind this stance appears to be purely profit-driven: “We did this to try and anticipate the market”.
Which Tucker feels puts MLC ahead of the game. In a most un-Zen like fashion Tucker nearly gloats as he mentions the recent enquiries which he feels painted shelf space fees, with their potential anti-competitive nature, in unfavourable light.
THE ROAD TO NIRVANA
Competitive manoeuvring aside, how far has Tucker gone towards addressing the issues he has been so fervently promoting within his own organisation? Three years removed from his “perfect storm,” the reality is just over half way. MLC is far from “pure”.
At present, Tucker says that somewhere over 50 percent of the business that comes into MLC’s coffers is fee-based – a scenario that obviously does not go unnoticed by Tucker’s detractors. Tucker does not define what a fee is, another part of the controversy.
Tucker says that removing the conflicts inherent in commission-based advice is “an important element” in improving consumer opinion of financial planners, which should encourage greater use of their services.
But Tucker also feels that other issues are crucial to the process of making planning more professional, including greater transparency around payments; the need for advisers to continue working on education and qualifications; how the industry provides for and engages in support and that the customer needs to be not just satisfied by the advice received but also become an advocate for advice itself.
But he still agrees that commissions remain the single, most visible, symbol to the market in terms of convincing the public of the professionalism of planning. Tucker feels that even today the customer will believe that an adviser has chosen a product or action because it has the highest commission, whether or not the adviser actually has.
As Tucker said in a speech to the American Chamber of Commerce in June, “In my view, any advice business which is still majority reliant on income derived, not from advice given to customers but from the product sales they make, will have growing difficulty convincing customers that their interests are the primary concern”.
CONFLICT FREE?
The question needs to be asked; if Tucker is so convinced that fee-based advice is the future, and, hence, the key to increased profits, why are MLC’s revenues still hovering around 50 percent commission-related?
Is there trouble in paradise? Are advisers finding that revenue suffers when they switch from commission to fee-based? Tucker says no.
“It’s only anecdotal, but I’ve seen that, for the adviser practice, their business is growing.”
Tucker admits that the process involved making the switch is not easy. But he says that, in reality, it doesn’t turn out to be as difficult as many have feared, nor as negative a process.
“Some advisers wrongly thought that we were having a go at them for doing the wrong thing,” Tucker says, as he recalls MLC’s process of transitioning planners.
Which, he says, was quite different from MLC’s actual goal – by assuming that more people would seek and take advice if they were confident about the actual value of that advice.
When it comes to bringing up the subject of commissions, Tucker says, “it can be quite confronting for the adviser to think about having a conversation with a customer he’s had for 10 years.
But, it’s easier than waiting to have the customer come and ask about trail commissions”. Which falls nicely into Tucker’s taking the upper hand, competitive- edge mantra.
The problem is that not everyone has come to the same conclusion regarding commissions.
“If MLC acts [alone],” Tucker says, “it’s a form of ‘corporate gridlock”’.
He says that at MLC there was initial concern that by forcing advisers to switch to a fee-based model, that they would leave. A concern he says was entirely unfounded and seriously “underestimating how resilient advisers are to change.”
As evidence, Tucker mentions the enormous changes in up-front commissions on superannuation products over the years. “It was something like 127 percent in 1994 and today is more like 2 percent.”
Yet, planners have adapted.
Tucker remains bullish on the long term prospects of fee-based advice replacing commission-based practice.
“I think we’ve made terrific progress,” he says.
“It is no longer an issue of if when move to fees, but an issue of how and when.”
THE YING TO HIS YANG
Tucker naysayer’s, and there are some, readily point to an apparent inconsistency between Tucker’s views of commissions as being conflict-ridden, and the lurking conflicts of an organisation that manufactures products with the concept of conflict-free client recommendations.
Tucker admits to a conflict between MLC and the parent company, NAB, regarding providing completely unbiased product advice. But he also says that “when they walk in the door at NAB” the customer is aware of this arrangement.
And besides, he interjects, “just about every major dealer group has an alignment to a major institution. The first and most obvious conflict is commission.”
To the end, Tucker remains remarkably Zen-like in his belief that the conflict between commission-based and fee-based advice has been overcome. As proof, he says, that today “no one is talking about moving from fee-based to commission-based”.
“The argument in favour of fee-for-service remuneration for advisors has been put and won,” Tucker remarked to the American Chamber in June.
“It has been won in the court of public opinion, the corridors of Parliament, in the offices of the regulators, and increasingly – in the market place.”
It remains to be seen if, in the eyes of the consumer, the battle has been won.
