Herd mentality is apparent in every facet of human life. Whether it’s catwalk fashion, stockmarket trends or the latest mobile phone, it is human nature to want to follow the pack to avoid being left behind.
Banks are no exception.
So when NAB Financial Planning announced in late January plans to transition all new clients to a fee-for-advice approach, the question was arguably not if, but when, its competitors would follow. NAB is the first banking licensee to phase out trail commissions entirely, with most of its competitors offering both new and existing clients a choice as to how they pay for advice. Significantly, NAB hopes that over time its entire client base will transition to fee-for-advice for investments and insurance products.
Under the move, NAB will shift its more than 400 planners to a fee-for-advice approach for all new clients by the end of 2008. Clients will pay an explicit fee for advice agreed between the adviser and the customer, with all trail commissions paid by investment product providers fully rebated. Geoff Rogers, general manager of NAB Financial Planning, says the aim of stamping out commissions is to increase transparency and customer control. He does not believe the transition reduces choice for the client.
“Some [competitors] are saying, ‘we offer our clients a choice between commissions and fees’, ” Rogers says. “We offer choice as to how [customers] choose to pay the fees – they might want to pay as a percentage of assets, or as a percentage of contributions, or they might want the fee deducted from their credit card. We still give them a choice, they have exactly the same if not more flexibility; we’re just not using trail commissions, of which there might not be the same line of sight or control.”
At a planner level, the transition will have minimal impact. NAB planners remain salaried and entitled to a share of the business’s revenue. Rogers says the move necessitates some fine tuning to how planners present fees and discuss the bank’s methodology with clients, but does not represent a significant change. “We’ve been supportive of holistic financial planning for a long time – we’ve been offering a fee-for-advice service for almost five years – so our fundamental method of operation is not changing,” he says.
“Essentially what clients pay for advice is now structured as a fee, and they have more control versus the previous arrangement, where it’s more of a relationship between a planner and a product provider. It doesn’t change the nature of advice.” The model adopted by Westpac recently for its $199 Super Health Check bears the closest resemblance to the new NAB model.