Planners Give Up Rebate System
Sydney Morning Herald
Monday November 20, 2006
TWO of Australia's largest financial planning groups are dismantling reward systems that previously gave financial planners greater rewards for recommending particular investment decisions.
Both the Challenger Financial Services' Genesys Wealth Advisers and the ING's Retireinvest say they are winding up old incentive schemes for financial planners.Their move to clamp down on rewards systems for financial planner franchisees follows increased Australian Securities and Investments Commission scrutiny of the payment of large sums of money to financial dealer groups by Australia's largest investment managers.The payments, known as rebates, have become crucial to the business model of financial dealer groups, in some cases making up more than 50 per cent of their income. Based on a percentage of each dollar invested, the payments are outstripping dealer groups' better-known sources of revenue from fees-for-advice and trailing commissions.It has been common in the financial planning industry for such rebates to form the basis of rewards or incentives the financial dealer group passes on to its financial planner franchisees. But because different investment managers pay different rates of rebates, the rebate-based reward systems have given planners a financial incentive to recommend to their clients the investment manager that pays the highest rebate. Even more insidiously, some plans have favoured financial planners recommending the investment platform of their owner, as was the case with the rewards plan used by Genesys.Greg Kirk, the chief executive of Genesys, said the previous reward system was based on how much money was directed to the Challenger investment platform and the franchise with the fastest revenue growth.But Mr Kirk says the plan was overly complex, it distributed only the relatively small amount of $800,000 a year across 400 financial planners and was no longer appropriate for the business. The plan was stopped on June 30."It wasn't aligned with where we wanted to go," Mr Kirk said. He said of the current system: "We don't share any of that [rebate] revenue with those member firms."Stephen Sinclair, a spokesman for ING Advice, said Retireinvest would stop its current plan on January 1. It rewarded franchisees on the basis of rebates paid by the various investment managers, which ranged from 0.15 to 0.25 per cent of each dollar invested. The new plan will treat each dollar invested equally when assessing rewards for franchisees."They are moving to ensure an absolutely even playing field," Mr Sinclair said.
© 2006 Sydney Morning Herald
