Volume Bonuses still rife with Financial Planners

Posted on: August 27, 2014
Posted by: Daniel Budreika

broken pencilOver recent years there has been a focus for the financial planning industry to move from product-centric sales to financial advice.  New FOFA legislation (Future of Financial Advice) was recently introduced to ensure changes occurred but with some good old fashioned lobbying from big banks and various interest groups, largely nothing happened.

For years I’ve seen many respected people in the financial planning industry get put on pedestals (often at professional development days and conferences) and be told that these are the professionals we as advisers should look up to.  Many of these are the same people who are happy to be remunerated by asset based trail commissions, contribution fees, volume bonuses and sweetheart deals to keep their clients with large superannuation and investment product providers.  Even with all the increase scrutiny the financial services industry faces, these crooked practises still occur behind the scenes.  A simple Google search of these topics returns a range of firms disclosing their murky arrangements and even legal firms that offer advice on how to ensure volume bonuses can be maintained within the new FOFA environment.  Essentially, a volume bonus is legal if it is paid to the firm and not the adviser directly and there is an extensive list of products that the adviser can potentially recommend to clients.  In short, very little has changed.

I distinctly remember the moment several years ago when I realised the firm I was working for at the time, earned a sizable portion of their revenue this way.  I was quite young and had just begun in the industry as a junior paraplanner.  That particular day I stopped to read one of the wordy disclaimers I had been obliviously inserting into each statement of advice document.  I read it again and the penny dropped.  It explained why all of our clients had the same expensive product when cheaper alternatives were available.  A large chunk of the admin fees that were charged from the client’s accounts were being paid to the dealer group (who held the firm’s financial services licence), which were in turn paid back to the firm.  The thing that stood out the most was the line “…this payment (to the firm I worked for) is made by the dealer and is at no additional cost to you…”.  I was horrified at this mistruth and thought perhaps the client would be too if they knew we were taking an additional sweetener under the table.  This made me wake up and question what I felt comfortable with if I ever became entrusted to give people financial advice.

The day we started Planning for Prosperity was a new beginning and a chance to draw a line in the sand and distance ourselves with the old world.  It boggles the mind how these sorts of arrangements can continue to exist today and that the so-called advisers involved happily endorse it.

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