Industry Super Network (ISN) has re-released May 2011 research by Rice Warner Actuaries that found financial advice paid for on an up-front basis rather than by an ongoing asset-based fee or commission was between two and 17 times cheaper.
The report, commissioned by ISN, modelled five common advice scenarios, finding that in every case consumers were well in front by paying a set or hourly fee as opposed to paying ongoing asset-based fees, favoured by the financial planning industry.
In every outcome modelled, the actual cost of advice was greater where the client paid an ongoing fee.
ISN Chief Executive David Whiteley stated, “Ongoing fees are a very expensive way to pay for financial advice and this is shutting out the four out of five consumers who do not seek financial advice whether from financial planners, accountants or super funds.”
“The financial planning industry consistently asserts that the Future of Financial Advice (FoFA) reforms will increase the cost of advice and yet the only available evidence is that the cost of advice will reduce.”
“The study reinforces the importance of the opt-in proposals to protect consumers paying fees to financial planners for advice they do not receive, and make advice a lot more affordable and accessible for ordinary Australians.”
Ongoing asset-based fees will perpetuate the planning industry’s bias towards retail super funds which are prepared to offer these payment facilities. On average, retail super funds have underperformed industry super funds over the short, medium and long term.
Ongoing asset-based fees are preferred by financial planners because they replicate all the trappings of the commissions system. This is why the ‘opt-in’ is a necessary consumer protection.
Without the opt-in, Australia’s superannuation system will continue to be blighted by the prospect of ongoing advice fees being paid by many retail super fund members for which no financial advice has been sought or received.
Industry SuperFunds are currently running press ads which reassure their members that Industry SuperFunds charge an up-front fee for financial advice and advice fees are only charged when financial advice is provided.