There’s more than meets the eye in a recent claim by Industry Funds Financial Planning (IFFP) that commission-based advice can cost consumers up to 13 times more than fee-based advice.
The claim, based on analysis conducted for IFFP by Rice Warner Actuaries, was published yesterday and immediately attracted headlines and commentary. ÂÂ
The headline on the IFFP release states: “Consumers pay up to 13 times too much for financial planning advice”. (Which raises a question: How much should consumers pay for advice? That’s another story.)
Sure, that’s the headline and that’s what the popular press (and some unpopular press) will be focusing on.
However, the detail of this analysis will doubtless be questioned by groups who don’t like the message (if IFFP lets them see the report – and at the time of writing it hadn’t).
Interestingly, data that those groups often rely on to demonstrate the quality of services and products offered by their own constituents is also produced by Rice Warner. And that analysis is often questioned by opponents, including industry funds.
But all that is somewhat beside the point. And the point is that this research represents the missing link in the industry funds’ ongoing (and effective) campaign against product commissions. ÂÂ
“Industry super funds are often portrayed as being anti-advice, when in fact they’re anti-sales commission”, says David Whiteley, executive manager of Industry Super Network.
“What we wanted to do was identify the value of different types of advice, and that’s what the report does. The report quantifies the value of advice if you pay fees [compared to] if you pay commissions.
“We weren’t surprised that fee-for-service advice turned out to be better value; we were surprised by the extent of the difference.”
Industry superannuation funds are well known for their public stance against commission-based financial planning advice. the funds’ “Compare the Pair” advertisements have upset large sections of the financial planning community that jump to the conclusion that “anti-commission” equals “anti-planner”.
That’s not true, and it’s a misinterpretation of the industry funds’ position. They are unapologetically anti-commission; the fact that they own and operate a financial planning business, coupled with the research released yesterday outlining the value of fee-for-service advice, explodes hopefully once and for all the myth that they’re “anti-planner”.
But you can see how the misinterpretation arises. There’s a critical element missing from the industry funds’ advertising. Having got across the message that returns from industry super funds are generally higher than from funds that pay commissions, the message should then be: use a fee-based financial planning service.
Maybe that’s the next phase of the advertising campaign.
It should be noted that the Rice Warner analysis compares IFFP’s services with the commission alternative. IFFP provides advice only to members of industry super funds. And any measurements – like “13 times too much” or “twice as much” – use the IFFP service as a baseline. It’s by no means true that what IFFP charges for its services is necessarily appropriate for other planning firms or individual planners.
Financial planning is worth whatever the financial planner wants to charge for it and whatever the market is willing to pay. A call to eliminate commission does not suggest there should be a “one-price-charged-by-all” approach.
If you’re good at what you do, provide a high-quality service and cater well to your clients’ needs, there should be no limit to what you can charge – provided it’s clearly disclosed, agreed to by the client, and paid to you by the client.
Does commission really end up costing the client more in the long term? Click below to add a comment and share your views.
