Call for commission ban
The Age
Monday July 20, 2009
REGULATORS in the United States and Britain are moving to ban commissions paid to financial planners, in stark contrast to the Australian approach.A UK Financial Services Authority consultation paper released in June proposes a ban on commissions paid to financial planners by investment product "manufacturers" because the payments distort the advice a consumer receives.And the regulator has flagged its interest in ensuring planners' pay structures are not overly based on hitting financial targets, even after commissions are axed by the end of 2012.BusinessDay on Saturday documented the sales culture that exists within the financial planning arms inside Australian banks. It includes league tables on revenues earned, luxurious incentive trips and lucrative bonuses.One Westpac document from around 2007 told executive financial planners they could expect commissions of $350,000 on top of a base salary of $150,000.The US Treasury Department is also intent on attacking commission-based payments. Its Financial Regulatory Reform paper released in June proposes the Securities and Exchange Commission be able to "examine and ban" payments that are in the interests of "intermediaries", such as financial planners, but do not benefit investors. It also proposes a higher legal burden on intermediaries to act in their customers' best interests.Australian regulators have not acted on commissions despite an existing legal obligation that financial planners must act in their clients' best interests.Commissions of up to 10 per cent were identified as a factor in investors being influenced to buy into the failed businesses of Westpoint, Storm Financial, Great Southern and Timbercorp.In August 2007, a parliamentary inquiry led by Senator Grant Chapman decided that increased disclosure requirements was the best way of tackling the problem of commissions influencing financial planning advice.A new parliamentary inquiry headed by Bernie Ripoll is examining the collapse of Storm Financial and related issues, with a reporting deadline of November.Banks such as ANZ and Westpac have recently changed their internal remuneration structures for planners to a so-called "balanced scorecard" system in an attempt to measure quality of advice clients receive.But BusinessDay has obtained recent internal ANZ emails that show strong pressure is still being applied on financial planners to lift their revenue contributions.
© 2009 The Age
