Vance Arkinstall. Photo / Supplied
Abandoning commissions in favour of charging fees for service is likely to become the financial advisory industry standard, Investment Savings and Insurance Association head Vance Arkinstall claims.
The ISI board is meeting this week to finalise the details of its voluntary move away from earning commissions from financial product providers.
The policy will be compulsory for ISI members, and Arkinstall believes many others in the industry will follow suit.
"I think it is very likely that this will become widely recognised as clearly the best practice," Arkinstall said.
The ISI was taking a leadership position with the aim of creating greater trust in the financial advisory industry.
Commissions were an arrangement between the product provider and the adviser which the consumer had no control over.
"This is a move to be transparent, to put the agreement where it should be - between the consumer and adviser."
Advisers were likely to move to asset-based fees, whereby they charged a fee based on a percentage of the funds they were managing for a client.
The no commissions policy would not be retrospective, so advisers earning trail commission from existing arrangements would still receive that income.
Trail was a problem, Arkinstall said. In some cases advisers had onsold their client lists to other advisers who continued to earn the commission and may never even have met the clients.
"That's just not good enough. They are quite frankly clipping the ticket."
The policy did not cover insurance products.
Arkinstall said the ISI had buy-in from its membership for the move, but it is clear not all in the industry are on side.
Even though his firm charged fees rather than earning product commissions, International Financial Planners managing director Robert Oddy disagreed with a one-size-fits-all model.
As the financial advisory industry faced more regulation their costs were rising, and this would price lower income people out of the advice market.
This would drive them to the banks and fund managers which sold their own or related products.
Oddy believed it would also mean a cleanout of advisers from the industry.
Institute of Financial Planners president Lyn McMorran said the IFA was not opposed to commissions.
"If a situation arises where an adviser receives commission from a product provider, we believe that the adviser must be totally transparent with their client about this and must also justify their recommendations in terms of their suitability for the client's needs," she said.
