alan_kohler.jpgI first began writing about the inherent conflict involved in paying for financial advice with product commissions in 2002 in my first column for The Age and Sydney Morning Herald . It was a piece about the best-performing super funds that year. The top one was Host Plus and nine of the top 10 were industry funds. “How come financial planners aren’t recommending these,” I asked the managers of these funds innocently. “Because we don’t pay commissions,” came the answer. I subsequently wrote on this issue many times, in many ways, over the years, and every time I looked at it I couldn’t get over what seemed to me an obvious fact: that commissions must bias advice, firstly towards investing, when that may not be appropriate, and secondly towards commission-paying products.

In response, financial planners have accused me of bias, of tarring them all with the same brush, or of simply trying to flog subscriptions to my newsletter, Eureka Report . I am happy to confess: I’m guilty on all counts. Yes, I’m biased against commissions. I don’t have a balanced view on this subject at all. I think the way financial advice is paid for out of the products being sold, through the system that the financial services giants call “advice-based distribution”, is a disgrace. Yes, I am indiscriminate in my criticisms, even though I know there are many good financial planners who don’t take commissions and who try to do the right thing. That’s because it’s the industry I am criticising, not the individuals. And yes, I am trying to sell subscriptions.

Eureka Report charges a flat rate of $330 a year, or $6.34 per week, not a percentage. The client pays for it directly – it doesn’t get deducted from an investment product. It is independent. Many financial planners are subscribers. I’m not ashamed of trying to sell it. Reading Greg Bright’s missive from the IFSA conference on the Gold Coast last month – published in an Investment and Technology newsletter – about the debate over commissions between Australian Super’s Ian Silk and Colonial First State’s Brian Bissaker, made my blood boil and my heart sink all at the same time. Ian said: “What does a financial planner want and need in a fund? Commissions. Some don’t promote those funds that don’t pay commissions.”

Brian said: “Product manufacturers subsidise the cost of advice to members through the payment of commissions. When a manufacturer subsidises this cost there is a conflict of interest, but it is not always bad.” This same debate, with same recitals, has been going on for years. It will go on for many more years unless the Government steps in and regulates. The industry certainly won’t do anything, that’s for sure. Financial planners who receive an annuity stream of commissions, rather than charging by the hour for their advice, are able to sell their practices for three to four times as much as true feefor- service advisers when they retire. Why would anyone want to change? The Government’s disclosure approach to dealing with the problem failed because no-one read the disclosure (there was too much of it).

But instead of dealing with the fundamental problem, the solution is to cut back the disclosure. I actually think it’s time for me to give up. I’ve become a bore on the subject, droning on to anyone who’s unlucky enough to be caught in the same room, banging on in columns that few people read. The clients seem to be perfectly happy shelling out 2 per cent or more of their returns for the privilege of being told which commission-paying product to buy. The financial services industry has a pretty good lobby group, so the Government is moving slowly and carefully. Minister Nick Sherry has been saying some interesting things lately, but I’ll believe the action when I see it. So, that’s it. This is my last column for this magazine. I wish it well. And those financial planners who are not taking commissions because they believe themselves to be professional advisers and not salespeople – you have my undying admiration and support. In the end, you will win.

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