Broker commissions ‘the high-water mark’ for disclosure

He believes that the malignant rhetoric surrounding commissions in financial advice, and now mortgage broking, was originated in Canberra by “feckless morons” who needed a scapegoat for their incompetence.

“Sadly, the complexity of the financial sector was overblown in the minds of the legislators and this gave rise to the wholesale slaughter of the old and effective distribution system,” Mr Heathwood told The Adviser. “The retail financial services sector is very vanilla at its core.

“It became clear during this passage of time that the advisory process hadn’t improved and so the feckless morons in Canberra needed a scapegoat — enter commission and conflicted remuneration. What a quaint way to lay the blame squarely at the feet of the advisory business.

“Commission was now the great ‘bogeyman’, wow, a double whammy for suppliers; commission was the root of all evil and removing it lowered costs.”

Mr Heathwood’s comments come after ASIC chair James Shipton last week said that he has been “surprised” that there has been “reluctance, and often resistance, to addressing conflicts, especially those embedded in remuneration”, and highlighted the regulator’s 2017 broker remuneration report.

Mr Shipton pointed out how ASIC’s review highlighted the “desirability of removing at least some of the remuneration-related conflicts in this sector”.

Broker remuneration has been under intense scrutiny, with some suggesting that commissions should be scrapped altogether and replaced with a fee for service.

But according to Mr Heathwood, commission-driven selling is “the high-water mark for disclosure”.

“It creates clarity, it creates choice, it encourages the customer to seek other opinions, but most importantly, it divides the sector into component parts and creates the opportunity for the truly independent advisory professionals to emerge on their terms,” the executive chairman said.

“Retail financial products are simple in their nature. Selling investments and insurance should be no different to selling home loans or cars or anything else.

“Stock brokers have and are doing it still. Let the brands compete and do their best, but allow the breathing space for impartial advice to co-exist rigorously; a profession will emerge because when you integrate financial products, you then need advice. Until this issue is addressed, it will remain smoke and mirrors.”

According to Mr Heathwood, trail and upfront commissions are not the enemy, saying: “They are paid from the manufacturer, forms part of their marketing and business acquisition budget, does not increase the cost to the buyer, is fully disclosed to the customer, lowers fees to clients and underwrites a competitive marketplace from which we know all innovation is derived.

“The time for commission to make a comeback is now; the internet has never made the market more transparent.”

[Related: Major brokerage calls for remuneration reform]