Planners licensed by Futuro Financial Services have embraced a kickback cash pooling scheme, ploughing $60 million of clients' funds into three products in just six weeks.
The Highfield Group, which owns Futuro, has established an unlisted public company to accept volume bonuses negotiated with select fund managers and platform providers.
Adviser Long Term Opportunity (ALTO) pays advisers biannual dividends and a final lump sum when the fund is eventually fully capitalised.
"The fact that we've got so much dough into it in such a short time frame shows it's been very well accepted," Futuro Financial Services managing director Dennis Bashford said.
"Advisers capitalise the revenue stream during the term of the product and then they get a lump sum at the end."
Launched in July, ALTO makes money from the pooled volume bonuses paid by the product providers and by charging a management fee.
Bashford said the scheme was more robust than other dealer group equity offerings.
"Advisers lose the value in most equity offerings. What is their equity going to be worth? That depends on the market. When is it going to be realised? That depends on when the company is sold," he said.
"The big difference is [Futuro advisers] know what they're going to get. They get something along the way and something at a specific time.
"It's an offer that's quantifiable and that's attractive to a number of the big hitters."
He said the scheme would not compromise Futuro's independence.
"We haven't removed or culled our investment list in any way to drive dollars into that list or create a bias. So, it's largely up to the planner," he told InvestorDaily.
FSI Consulting director Brett Walker has called for policy clarity from the FPA and Investment and Financial Services Association (IFSA).
The IFSA/FPA Industry Code of Practice on Alternative Forms of Remuneration in the Wealth Management Industry bans volume-related payments greater than $300 between manufacturers and advisers.
But, as neither ALTO nor the Highfield Group was a licensee, the code did not apply, Walker said.
Futuro is a principal member of the FPA. The FPA Conflict of Interest Principles state members should avoid any licensee-to-adviser payments that are biased or not in the interests of the client.
The ASIC conflicts of interest policy leaves determination of the situation to the adviser.
Almost 60 fund managers signed up to pay to play in a dollars-for-product support scheme instigated by Futuro in July.
Cash will be used to fund adviser training and conferences.
Futuro has about 60 planners and $1.3 billion in funds under administration.
Letter to the editor in response to the above article, received September 26:
Your recent article titled "Futuro cashes in on kickbacks" was disappointing in that it contained a number of inaccuracies both factually and in the way in which Futuro and more particularly its network was portrayed
The inference that Futuro is a "kickback" focused dealer can hardly be further from the truth, in fact, the volume bonuses that we are in receipt of are largely the result of them being offered rather than being sought.
The terminology "kickback cash pooling scheme" suggests the size of the Volume Bonus is the major selection criteria for products used by Futuro and ALTO. This is incorrect. In fact all products in the suite earn volume bonuses way below those available from other products, with one product, in fact, being among the lowest earning.
The phrase "Planners licensed by Futuro Financial Services have embraced a kickback cash pooling scheme, ploughing $60 million of clients' funds into three products" suggests that are planners are more driven by money than the interests of their clients. This also is incorrect. The reason the money has flowed into these products is that, without exception, it is in the best interests of each individual client. Also, without exception, a written explanation quantifying the reasons as to why the change should be made has been given to every client and the planners relationship with ALTO has been properly disclosed.
The research done in choosing the ALTO funds ensured the various platforms complimented each other and that they were the best in their fields.
To further explain, when looking at what platforms would be included in ALTO a comprehensive selection process was undertaken. This process included:
. The development of a formal set of selection criteria (regardless of volume bonuses) which looked at, amongst other things:
o The product range
o The efficiency and track record of the product's administration
o Fees and charges, both stated and hidden. (More extensive research here was undertaken than that available from the research houses).
o The permanency of senior staff
o The attitude and permanency of support staff
o Ease and accuracy of access to information
o IT capability
o Their capacity and track record on delivery of their promises
. Formal and extensive in-house research to identify potential platforms. This included research processes that were developed by us, that again, were more comprehensive than those normally available and which allowed us to compare "apples with apples".
. The development of a short list of 8 product manufacturers
. The selection of a national panel of our most professional and experienced advisers who, subsequently spent between a half and full day in the Head Offices of the shortlisted platform providers looking and getting a feel for their operation. It was only then that the 3 platforms that would make up the ALTO suite were selected. No planners had any idea of what volume bonus rate, if any, these platforms might attract.
The reason ALTO has attracted significant dollars to date relates directly to the quality and appropriateness of the platforms rather than the volume bonus rate. Weight is added to this argument in that other (non ALTO) platforms on the Futuro approved list pay greater bonuses and they do not now, nor have they in the past, been particularly well supported. And this is despite the fact that, unlike other dealers who retain volume bonuses, Futuro passes onto its planners, depending on their dealer fee, between 82% and 98% of this bonus and our planners in no way are discouraged from using them.
Finally in relation to the suggestion that "Almost 60 fund managers signed up to "pay to play" in a dollars-for-product support scheme instigated by Futuro in July." This also is untrue. In June fund managers were asked for their input into the development of our "Key Partner Program" out of some 200 who were spoken to around 60 responded with their ideas on how the program could be structured. The final sponsorship proposal only went out 3 days before the article was published so at that time actually no one had signed up to "Pay to Play"
Also in relation to that program it was made clear that sponsorship was not being sought to supplement our bottom line. In fact, every dollar the program attracts will, as it has in the past, be spent on Futuro adviser training programs. This meant once the necessary funding targets are met then no further sponsorship would be taken or sought and this, in turn, serves to limit the number of sponsors. As for the "60 fund managers signed up to pay to play in a dollars-for-product support scheme" the true number will more likely stand at around 15. Also not being a sponsor does not mean exclusion from our APL as "pay to play" might suggest. In fact our product list would be one of the most extensive in the industry, in that we use the full Lonsec recommended list together with our own Supplementary APL and we have an undertaking with our network not to cull our list to force funds into specific products.
This article was particularly disappointing in that both Futuro and its network enjoy considerable industry respect in terms of professionalism and integrity. I hope this clarifies our position and would hope that any future articles more closely reflect the truth.
Dennis Bashford
Futuro Managing Director
