Late last year, there was some criticism in both the mainstream press and financial planning circles, regarding the merits of commissions and fees (I know, criticism of financial planning – surprise, surprise).
Many of the points make reference to a report by Roy Morgan research – Superannuation and Wealth Management – which revealed that in the four years between 2005 and 2009, financial planners from the six largest financial institutions – the big banks, AMP and AXA – directed more than 70% of sales into their own products.
This figure, expressed in isolation, does suggest that something is amiss and many of the commentators criticising this percentage express some doubts as to the ‘fairness’ of such a system. But how does this criticism stack up against other information?
How Terrible.
Let’s look at the reality of what institutional planners face:
- legally, they’re only allowed to recommend products on their employers Approved Product List (APL). Why would a bank have another banks products on its APL? That’s effectively saying they don’t have the best product. They’re not, generally, in the business of recommending other companies products.
- if I go into an ANZ branch, I expect to deal with ANZ people telling me about ANZ products. I don’t know if I’m unusual in this expectation, but it seems there’re a lot of people that expect something else.
- there are, or at least there were whilst I was there, targets for planners to achieve that normally relate to the volume of business they write. But before we persecute these bank planners, let’s remember that most other financial planning businesses have similar structures in place. (If you ever get the chance, be sure to ask the most vocal critics of the banks for their remuneration and incentive structures for their staff.)
That’s Just How It Is…
I’m the last person to defend the status quo. Logic dictates that it’s impossible for each bank to have the ‘best’ product for 70% of the clients they see – so I’ll accept that this part of financial planning could be improved. But I have an immediate suspicion of critics that adopt the slightest holier-than-thou tone in their remarks.
Always question the criticism.
Dig deeper, and you’ll find that many of the people harping on about the evil of commissions and planners concentrating their product recommendations see nothing wrong with charging their clients percentage-based fees – something I have serious issues with.
The bigger issues, in my mind, are
- the value that clients get for the fees they pay, and
- making sure that the strategic advice (not the product) is at the forefront of the planners mind.
Hypocrite, or Hypo-Critic?
As for this critic of the system, I’ve said it before – we do not charge new percentage fees or accept commissions on superannuation or investments. We do accept insurance commissions, for the reasons outlined in our Operating Principles.
I’m happily upfront about this situation with my clients and openly criticise those that charge percentage-based fees, because I can demonstrate to my clients the value we bring to their financial situation, and all of our advice is based upon the strategies they need, not the products we’re selling.
Be sure to question the critics.
