Time's up for sly trailing commissions

SALES commissions paid to financial planners could be on the way out as the big retail superannuation providers switch to fee-based services.

Time's up for sly trailing commissions

CONTROVERSIAL sales commissions paid to financial planners could be on the way out as the big retail superannuation providers switch to fee-based services.

The move away from commission payments could mean that independent financial advice is coming within reach of ordinary mum and dad investors.

Truly independent financial advice has traditionally been the domain of the very wealthy, who can afford to pay up front to ensure their planner is accountable only to them and not swayed by commission income for recommending certain products.

However, the majority of people have been paying in a drip-feed method. Those people seeking advice have usually had to pay higher fees within their super and other investments to make up for the sales and trailing commissions paid to the advisers who recommended those products.

Sales commissions have become a big negative for the retail super sector as a result of some very effective marketing by the rival industry superannuation sector.

In particular the "compare the pair" advertising campaigns seem to have had an impact.

But the writing has been on the wall for some time already.

The Australian Securities and Investments Commission has also heaped criticism on the commission-based fee system. In 2006 ASIC found that superannuation advice provided by planners operating on a commission basis was six times more likely to be "bad advice" compared with advisers who did not earn a commission.

In 2007 ASIC forced AMP into enforceable undertakings that its planners disclose to clients all their sales commissions.

However, it was not until late last year that the first big cracks in the sales commission model began appearing. For the first time, commission-free superannuation products started to be released by operators in the retail sector.

One bank and one non-bank financial institution launched simple, easy to use, low fee super accounts. The fees were comparable to those on an industry superannuation account, because there were no sales commissions embedded in the cost.

This year, others have gone further and more are expected to follow.

One bank is offering a $199 "Super Health Check". It involves a planner advising you for an upfront fee about how to grow your super, making the most of the tax benefits and working out how much you will need for retirement.

Another big bank has announced that it will also move to fee for advice system for all new investment clients in 2008.

Clients of this bank will pay an explicit fee, agreed between the adviser and the client, and all trailing commissions paid by investment product will then be rebated to the clients. That fee could range up to $20,000 for people with complex or high value assets to manage.

"Financial planners who work on this basis have long-term relationships with their customers," NAB financial planning general manager Geoff Rogers said.

"Customers prefer it and planners who work this way have long-term relationships with their clients as a result of it," Mr Rogers said.

But this new fee-for-service approach from some planners may not necessarily mean the products recommended to their customers will always be the best available.

"Financial advisers still don't recommend the best products," according to Industry Super Network chief executive David Whiteley.