Super industry scraps commissions

Published in The Age, June 2009 by Lucy Battersby

Today is a "monumental" day for Australian investors with the release of a new charter for superannuation advisors, which could introduce a new era in financial planning, according to industry analysts.

If approved by regulators, the Investments and Financial Services Association charter will give superannuation investors the choice to opt out of advice fees.

As foreshadowed in BusinessDay, Investment and Financial Services Association (IFSA) CEO Richard Gilbert today announced a new consumer charter for fund members, saying it was a major event for the industry and would instil confidence in the market.

He said by mid-2010 the super industry would be moving towards a fee-based system and away from one in which advisers received a commission.

"We are going to restructure ourselves so that consumers can see what they are paying for when they are getting advice, and how they match that payment with the value they get for advice,'' Mr Gilbert said in Canberra.

He said it was important for the industry to instil some confidence in the market and that those advising customers do so with as much integrity and transparency as possible.

The charter also requires consistent reporting and advertising from both industry and retail super funds, and aims to open up competition in the superannuation industry.

"It is a monumental day for investors,'' managing director of superannuation consultancy Chant West, Warren Chant, said.

"It puts more control in the hands of investors, and in many cases they will still pay the same amount (in fees), but now they have a choice.''

"And the onus is on the advisor to justify their fee.''

Currently, many superannuation funds bundle their fees and administration charges together and investors cannot see how much they are paying for each service.

Financial planners can also receive up-front or trailing commissions for selling particular financial products. Critics of this system say it encourages advisors to sell products with high commissions, and allows them to keep taking commissions for years.

Under the new system, super funds and advisors must differentiate between a member advice fee, when they provide advice, and a plan service fee, when they receive general advice or service.

A customer can now receive service without receiving advice, and will have to agree to pay any advisor fees.

"Fund members will be able to negotiate the value they receive for the advice fees they pay, and to opt in or opt out of advice payments depending on their circumstances and needs,'' chief executive of IFSA, Richard Gilbert, said in a statement.

The charter only applies to IFSA's 140 members, which are mainly the retail and wholesale superannuation, funds management and life insurance industries.

And it will also make financial advisors work harder, according to chief analyst at WealthWithin, Dale Gillham, because investors will be able to see much of their returns are going to advice fees.

"People know they have to got to pay fees, and they are happy to pay fees, but they need to know what is going on,'' he said.

"I think it is just getting to where the industry needs to be, but the industry is being pushed (to get there).''

The Federal Government is reviewing the entire $1.1 trillion superannuation system, led by deputy chairman of the Australian Securities and Investments Commission (ASIC), Jeremy Cooper.

Opposition superannuation spokesman Chris Pearce welcomed IFSA's positive initiative.

"This approach will provide the consumer with more choice over fees and product advice,' he said in a statement.

"The Rudd government's APRA league performance tables have widely missed its mark, and if left untouched, will mislead Australians.''