Super funds urged to use their market power with financial planners

The vexed issue of whether financial planners charge commissions or fee for service is about revenue, not how it’s delivered, the Fund Executives Association Ltd (FEAL) national conference was told last week.

Grahame Evans, managing director of Professional Investment Services, Australia’s largest independent dealer group, said that the outcome for investors was “virtually the same” irrespective of whether planners charged commissions or fees. He added, however, that it was almost impossible to run a successful planning business by charging clients on an hourly rate. “The reality is it doesn’t happen,” Evans said. “Hourly-based remuneration doesn’t work.” About half of PIS’s planners charged on a fee-for-service basis, he said, but this was usually as a basis points charge over the total assets under advice. “’Commissions’ is an emotive word. Revenue is the issue,” he said. “It takes on average 14 hours to do a full plan, so that would cost about $2,800.” Evans advised the fund executives in the audience to use their market power when negotiating with planning groups to provide that service for their members. “You have market power and you shouldn’t be afraid to use it,” he said. When PIS dealt with accountants, it was the accountants who drove the decisions of what to charge and when to charge it. Super funds could do the same. Evans was presenting at a session which included James Coyle, from Telstra Super, and Don Kofoed, from Q Super – both funds which have internal financial planning. Telstra provides free planning for members, in the belief that the member retention more than offsets the cross-subsidisation. Q Super recently moved from a free service to one whereby members are charged a modest fee of $275. Kofoed said that the financial planning service would never pay for itself. When Q Super put a price tag of $275 on something which actually cost $1,500, the demand dropped significantly. Evans said the fact was most people preferred for the cost of the advice to come out of the product. The FEAL conference – the only FEAL event which is open to all industry participants – had the theme of ‘Adequacy: Is Your Fund Leaking?’ The opening session looked at the inadequacy of super for women. The panellists urged more and better education to encourage women to save, as a way to offset the demographic problems of broken employment. Susan Ryan, AIST committee member, suggested the Government should abolish the contributions tax for people who earn less than the average weekly wage, which would tend to benefit women more. In a session on risk, Steve Schubert, from Russell Investment Group, said that longevity risk was a ‘sleeper’ in the system. He said that because of the ‘couple effect’ there was now more than a one-in-five chance that one or both of a married couple surviving to 100 years of age. Russell was the conference sponsor. Investment & Technology was the media partner.