The Future of Financial Advice legislation that outlaws commissions effective 1 July 2012 is currently being drafted by the government and after years of pushing for greater fee transparency I applaud the Government’s efforts to eliminate or at least reduce the conflicts of interest that currently exist. There is much hand wringing and outrage from the financial planning industry about the proposed new rules that require clients to “opt-in” to paying fees on an annual basis. Not surprisingly the industry opposes this as it would eliminate a large portion of their income that is collected from people that have no idea they are even paying fees. 

The cynic in me wonders if the elimination of commissions will achieve a better result for investors or if those commissions will simply be replaced by higher ongoing fees for funds management and advice. The top five players in the financial services industry effectively control manufacturing and distribution and therefore are unlikely to relinquish their hold on the gravy train of fees that have helped fuel their mega profits. The commission charging advisers of today are likely to replace those commissions with ongoing percentage based fees for access to products and advice.

The fact that the fastest growing sector of the financial services industry is the self directed investor says to me that the one size fits all – full advice or no advice model is fatally flawed. Investors want greater control over their investment and their financial future and have a high level of scepticism and distrust of financial advisers generally.

Recently, the AMP-AXA merger has been approved by both the federal government and shareholders creating another financial services powerhouse. Personally I am not sure that this merger will increase competition. Sure the AMP-AXA combination may be better positioned to compete with the big four banks but the fact remains that more than 80% of financial advisory groups are owned by or aligned with the institutions that manufacture and administer the majority of financial products in this country.

I have always strongly advocated that investors separate product sales from financial advice by paying a separate fee for advice and executing their own transactions. The problem with this is that most investment platforms require the mandatory use of an adviser. I strongly recommend that you read my article in this month’s education section that compares a range of popular investment platforms and illustrates the detrimental effect of bundling your advice with your investments.  By aggregating the buying power of thousands of investors 2020 is able to achieve direct access to products that would not normally be accessible by individuals.

If you are attending the upcoming 34th Australian Dental in Brisbane, please come to my investment presentation: “How to become a better investor and to successfully manage your wealth”.

When: 10.30am Thur 31 Mar 2011
Where: Industry Exhibition “theatrette” at the Australian Dental Congress
Presenters: 2020 DIRECTINVEST & Perpetual


Michael Lannon
Founder & Executive Director