1 July 2013 saw the start of new changes within the financial services/advice industry these changes are known as FOFA (Future of Financial Advice) and were introduced in a bid to make financial advice more accessible and the industry more transparent in relation to fees.
There are a number of changes introduced which in the main are positive but probably the biggest change that the consumer will notice is the ban on commissions from superannuation and investment products.
Previously Super/Investment fees were bundled together with Adviser fees/commissions these changes mean that product fees must be separated from any Adviser remuneration so that the consumer is able to fully understand what the product is charging and what the Adviser will receive (this will be negotiated directly between client and Adviser).
This is definitely a step in the right direction for the industry and in actual fact these changes have been happening behind the scenes for many years now.
However there have been what is classed as Grandfathering rules put in place which mean that if someone has a product with a built in commission prior to the date of the new legislation i.e 1 July 2013 these commissions can continue to be paid to the Adviser.
Now an Adviser receiving a commission is not in itself a bad thing so long as the client is receiving a service from the Adviser and understands the amount that the Adviser is receiving for these services.
But it could be that someone has a Super Fund for example that was set up a number of years ago and the product provider of that Super Fund is paying a commission to an Adviser even though that person has either never met the Adviser or has not had any contact with the Adviser for some time and is not actually receiving a service from the Adviser.
What to do
If you have a retail fund that was set up prior to 1 July 2013 then there could be an inbuilt Adviser commission, as said the industry have been progressively changing their products/methods leading up to this date for some time so it is not always the case that there will be, in fact I have been practising here since early 2008 and have been using products without inbuilt commissions since this time.
If you are unsure whether there is an inbuilt commission you can either contact the provider directly to find out or if you use an Adviser then you should already be aware of what the commission looks like.
If you do not have an ongoing relationship with an Adviser and establish that there is an inbuilt commission in your Super/Investment you do have a number of options which include:
- Remain in the fund and continue to pay commissions;
- Speak to the provider as they are likely to have a product that mirrors the commission product but with no commissions built in;
- Seek advice from a Professional Adviser about your Superannuation options;
- If you are financially savvy (and feel you do not require advice) consider rolling to a Super Fund without commissions.
There may be implications involved when rolling out of Superannuation such as loss of insurance, CGT exposure etc and therefore financial advice is recommended.
If you are interested in knowing more about these reforms please see: FOFA Reforms
Please note that the information provided above is general in nature and not be considered financial advice nor should be acted upon.