I received an email the other day from an AMP financial planner, a subscriber to my Eureka Report publica­tion. He likes the newsletter but thought my “continual swiping” at commission-based financial planners was getting tiresome. “Fair enough,” I wrote back. Some­times I find myself a bit boring as well.

He went on: “I think you are cor­rect in many of your criticisms of the industry as a whole and I agree that the day will probably come when advis­ers and product sellers will operate independently of each other, and the industry will be "cleaner" and consumers will benefit. But until that day arrives, commission-based financial advice is often better than no financial advice.” That’s where we part company, of course. I think that most of the time, no advice is better than a commission sale.

My correspondent says he doesn’t “grub for commissions” and I’m sure that’s true of many, if not most, good financial planners – up to a point. We’re all grubbing for a living: if your job is to sell product and you’re judged and paid according to how much you sell, then that’s what you will try to do; while at the same time trying to do the best by your clients.

It’s a difficult, if not impossible, position for financial advisers and it will require deep reform to fix. At the heart of the problem is the financial planning business model. Given the choice between a percentage of funds under advice that grows with the clients’ balances, a secure link with a major insti­tution that ensures marketing and back office support plus a retirement benefit of three or four times the income, and being on your own, scrounging a living at an hourly rate and getting no goodwill for your practice on retirement – guess what most people would do?

There are many financial advisers who are, on principle, doing just that, but it’s a tiny number that is not likely to quickly grow. While such a vast dif­ference in income and security exists between those who advise and sell and those who just advise, the industry will never really become “cleaner”.

Hopefully, lots of different ways will be tried to make the advice-only model work, and maybe, in time, one of them will take off.

One such attempt is a franchise op­eration based in Brisbane called Wealthy Frog, run by Ben Healy. It has a snazzy logo to go with the peculiar name, but at least Healy passionately believes in independent, advice-only financial plan­ning and is trying to find a way to make it work.

He says his advisers actually spend most of their time advising clients about savings and budgeting issues because, as he says, 90 percent of people are either spending everything they earn and not saving, or else going backwards. Need­less to say, his target client base is more in the 30-50 age group than the retirees who already have their lump sum ready to invest.

The Wealthy Frog model works by the adviser charging a flat fee of $4,500 a year for advice, which buys the client five sessions in the first year and fewer in subsequent years. Healy says an adviser can service about 80 clients in the first year and then 130 in later years, and should be able to earn between $300,000 and $400,000 annually. Healy charges franchisees $30,000 up front and an 8 percent ongoing franchise fee.

It’s a reasonable living, and Healy says he has about a dozen franchisees so far. But it’s not the $1 million a year or so that the same adviser might be able to earn from the same 80 clients by charging them one percent of funds under advice.

I wish Ben well, but I remain as convinced as ever that market-based solutions like this won’t produce the revolution that is needed. The only thing that will work, in my view, is new legislation banning product providers from employing advisers or running advice networks that purport to do other than sell their products.

Alan Kohler has been a financial journalist for 37 years and is currently the publisher of Eureka Report, an online independent publica­tion for investors, and Business Spectator, a new 24-hour-a-day business news and com­mentary website.

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