Don't be reliant on trail: Tim Brown

“You don't have to look far to see how quickly the market can change. Our cousins in New Zealand enjoyed all the benefits of upfront and trail as we did here in Australia until the GFC,” he writes in the next issue of The Adviser magazine.

“Now they have no trail and their up-fronts have been reduced to 0.5 per cent upfront. These decisions were made by the same banks that control the Australian market.”

Mr Brown also warned that trail could be targeted by the federal government as part of its Future of Financial Advice reforms.

“You only have to look at the changes to the financial planning industry to know that it is inevitable the government will intervene regarding the way credit advisers are remunerated,” he said.

“The government views any remuneration paid by financial institutions that influences an adviser’s decision in recommending certain products in a negative light.”

He said brokers should take heed of their foreign counterparts who are able to survive without trail because they have embraced diversification.

New Zealand brokers now try to sell two or three products to clients and have “dramatically” increased their income per transaction as a result, he said.

Canadian brokers sell general insurance and risk insurance in 50 per cent of their loans, he added.

Mr Brown wrote inThe Adviser that local brokers who embraced diversification would be in a stronger position if trail was to be cut.

He also said they would benefit regardless because diversified businesses have more loyal clients and are regarded as more valuable assets by potential buyers.

[Related: Bank “very likely” to reinstate trail in first year]

Tim Brown’s exclusive column appears in the next issue of The Adviser, due out later this month.