A bob each way on commissions
Wednesday, October 20th 2010, 4:56PM
by Philip Macalister
Talk about having a bob each way. Last week I went along to AMP's media presentation on what it calls "clear pricing" which in layman's terms is removing commission payments from investment products.
The move is to be applauded. It showed a couple of things. Firstly the ISI's bombshell earlier this year that its members would move to a voluntary ban on commissions on investment products isn't likely to happen any time soon.
AMP managing director Jack Regan said he held off the "clear pricing" announcement to see if either the ISI or the government was likely to do anything. For him the waiting time's over.
If one had to speculate what's happening one would suggest that someone on the ISI board pushed the organisation to drop its bombshell as the Australian government had made some noises around commissions being banned.
This was premature and ISI members weren't fully on board. It's OK for AMP to make its announcement as most of its distribution is through its own advisers. For managers like ING, which rely on independent financial advisers, the commission removal business is fraught with difficulty. The last thing some of these groups want to do at the moment is upset advisers (any more).
It’s also relatively easy for AMP to do as its advisers mostly sell risk products.
AMP presented some pretty interesting research conducted by Colmar Brunton around consumer's attitude to advice and how advisers are paid. Clearly the research was designed to strengthen the case for fees as opposed to commissions.
The take out points are around how much people are prepared to pay for advice, how advisers rate versus other professionals and the discovery most investors don't actually know how much they pay for advice.
The key point pushed by Regan was that consumers think commission creates conflict. It's a message he made strongly. However the numbers aren't a massive vote for fees.
Apparently 52% of consumers agreed that commissions introduce conflicts of interest and bias to the advice given.
Currently commissions are the most common with 52% of investors with advisers using this approach. That leaves 42% on fee for service.
The research, and the message, was clearly around the idea that commissions create conflicts of interest and bias.
But when asked if AMP would remove commissions from life insurance products the answer was an unequivocal no.
Talk about a bob each way.
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