Leading voices in the financial services industry are divided in their opinion of financial planning groups who receive kickbacks from fund managers.
Dealer groups and advisers who derive large profits from rebates for putting clients’ money into preferred platforms was the subject of a major debate at the InvestorInfo Wraps, Platforms and Masterfunds conference yesterday.
The FPA has stressed that the association’s conflict of interest principles require that advice cannot be biased in favour of one platform versus another based on remuneration to the adviser.
However, the practice is widespread amongst the FPA’s membership base.
“It’s an incredibly poor industry for looking at consumers,” compliance consultancy Paragem Partners managing director Ian Knox told the conference.
Knox said his research had shown that 95 per cent of dealer groups would operate at a loss of five basis points if volume rebates disappeared.
“A platform is basically a back door for the dealer . . . when everyone puts their nose into the trough it’s paid for by the client,” Knox said.
He said he was convinced that increasing consumer awareness of the practice would stop the rebates from getting higher.
Listed dealer group Count Financial is the largest user of BT’s Financial Group’s wrap advantage scheme.
It derives a large chunk of its revenue from the volume rebates it receives from the Westpac-owned business, but Count chief executive Marianne Perkovic said the regulator gave it the green light.
“We’ve spent time with ASIC and they’re happy with it – they say we’re standard setters in the industry,” Perkovic said.
Perkovic defended advisers who are remunerated through platform rebates, saying the focus should instead be on the real fat cats of the industry.
“At Christmas it’s not the advisers who are running off to buy luxury cars, it’s the portfolio managers,” she said.
While most dealer groups use several platform providers, Financial Services Partners (FSP) use a badged version of the Avanteos platform.
“We make no apology for it – in fact we are at great pains to disclose it to clients,” FSP chief executive Geoff Rimmer said.
MLC head of advice solutions Greg Miller said fee disclosure around rebates was not enough – it also had to be transparent to earn a client’s trust.
“Unless we have transparency we will always struggle,” Miller said.
The National Australia Bank-owned wealth manager does not pay rebates to dealer groups who use its MasterKey platform.
FPA chief executive Jo-Anne Bloch said duplicated disclosure was also a problem and fees needed to be negotiated between advisers and clients.
ASIC’s financial services regulation technical leader Geoff McCarthy said the key was ensuring clients understood the fee structure.
“Ineffective disclosure doesn’t help manage conflicts of interest,” McCarthy said.
