The Bull

Saturday 29

November, 2014 6:13 PM

Industry Chart

TheBull PREMIUM

  • Your
  • Portfolio

2012 - The Year To Clean Up Your Financial Act

2012 - The Year To Clean Up Your Financial Act

By Staff Journalist 25.09.2011


It’s estimated that roughly $2 billion each year is taken out of investors’ accounts and handed over to financial advisers and product providers who offer no financial advice for the fees charged. It’s highway robbery, but until laws caught up with the scam, there was nothing that investors could do about it.

Upfront and trailing commissions, and hidden fees on investment products have been a sour point for investors for decades. Trailing commissions can be as high as 1.5%, which means that if you’ve got $1 million in the market, you’re saying goodbye to $15,000 each year for financial advice. Not getting financial advice? Well, you’re still up for $15,000 a year.

Financial statements received from super and investment funds held “administration charges” which were fees to pay for financial advice received when the product was first taken out. But the problem for investors was that these fees were deducted regardless of the amount of advice actually received. The system was good for advisers and the product providers who received a recurring stream of money, but was not good for investors trying to boost their wealth or save money for retirement.

The system prayed on lax investor behaviour – because once set up, investors tended to forget about monitoring their investment portfolio and keeping in contact with their financial adviser. Even if the financial adviser ended its relationship with the client, the product provider would often continue receiving the trail commission.

The Federal Government’s Future of Financial Advice reforms announced in April this year by the Assistant Treasurer and Minister of Superannuation, Bill Shorten, aims to put a stop to the fee drain. From 1 July 2012, advisers and product providers will be banned from charging commissions and volume-based payments across managed investments, super and margin loans - but not risk insurance products (except insurance held within super), home loans and savings accounts. Upfront and trailing commissions will be axed, and in their place advisers will be required to charge a fee for the advice they actually provide.

Come next year, you should take a moment to consider:

1.    How much in trailing commission you’re currently forking out for investment and super products, including margin loans.

2.    Aim to reduce, or eliminate, these fees from your account

3.    On the subject of fees, you should also take a look at any trailing commissions or hidden fees on your mortgage, home and car insurance. The ban will not extend to insurance policies, home loans and banking products such as savings accounts – but this doesn’t mean that you still have to pay these fees if you team up with a rebate service (more below).

The ban does not apply retrospectively, which means that, unless you do something about it, the products you’re currently invested in will continue to cop trailing commissions every year.

Therefore come next year you have a couple of choices: you can either switch investment products and eliminate the trailing commission for future years, or transfer your existing products to a rebate service.

Switching investment products may not be a sound option if your existing products incur exit fees, and if there’s a significant buy/sell spread incurred when selling and buying. You must calculate how much these fees cost, and compare that to the ongoing trail drain you’re incurring on your existing accounts. Furthermore, if you have a financial adviser who advises you regularly, then financial advice will still incur a fee. Removing the trail commission from existing products does not mean that financial advice suddenly becomes free. If you’re happy with your existing financial planner and the job they do, then staying with the status quo may be the best option to take.

If you don’t need financial advice then there are rebate services around that can help you turn off the trailing commissions on existing products. Rebate services such as Dixon Advisory, YourMoneyBack, iRefund, YourShare and Infocus – allow you to nominate them as the recipient of the commission and they rebate it back to you. Clearly, these services are not voluntary organisations – they have to make a buck from the transaction too; they normally take a fixed percentage of the commission that’s capped at a certain dollar amount, or alternatively they charge a flat fee. In any case, you’ll be up for no more than $350, and potential savings from rebates on trailing commissions can be thousands.

This latter option is probably the best given that it doesn’t involve switching funds, and incurring possible exit fees, buy/sell spreads and the like. However, if you’ve been thinking about switching investment products then maybe it’s best to wait until July next year when the regulatory changes come into effect.

>> Click here to go back to the newsletter to read other articles

 

This article is of a general nature only and does not take into account your individual circumstances. For advice, TheBull recommends that you employ the services of a qualified financial adviser.



FROM THE NEWSLETTER

Rise of corporate divorces leads to fleeting gains

For the global mergers and acquisitions market,... More

How do you give financial help to your adult children?

Most, who can, want to give financial help to... More

Eight Pitfalls in Evaluating Green Energy Solutions

Oil that was cheap to extract (say $20 barrel)... More

Stocks on a roll: ASX rolling 52-week highs

ASX rolling 52-week highs for the previous... More



WHAT’S ON THIS WEEK

week 5 December 2014
    • 01
    • MTS Metcash half year results | 4:26 AM
    • RP Data RP Data Core Logic Home Value Index for November | 4:27 AM
    • RBA Reserve Bank of Australia index of commodity prices for November | 4:28 AM
    • Governance Institute national conference Governance Institute national conference, including speakers ASIC chairman Greg Medcraft, ASX executive and chief compliance officer Kevin Lewis and APRA deputy chair Ian Laughlin | 4:28 AM
    • TD Securities TD Securities-Melbourne Institute inflation gauge for November | 5:23 AM
    • ABS Australian Bureau of Statistics business indicators for the September quarter | 5:41 AM
    • PMI Australian Industry Group performance of manufacturing (PMI) index for November | 6:09 AM
    • 02
    • Dun and Bradstreet Dun & Bradstreet expectations survey | 4:23 AM
    • RBA RBA monthly board meeting and interest rate decision | 4:29 AM
    • ABS ABS building approvals for October | 6:07 AM
    • ABS ABS balance of payments and international investment position for the September quarter | 6:09 AM
    • ANZ ANZ-Roy Morgan weekly consumer confidence survey | 8:48 AM
    • ABS ABS government finance statistics for September quarter | 8:50 AM
    • Governance Institute national conference Governance Institute national conference, day two of two | 8:51 AM
    • 03
    • AOFM AOFM to issue $500 million of October 21, 2018 Treasury bonds | 2:19 AM
    • TPG TPG annual general meeting | 4:25 AM
    • PSI Australian Industry Group Australian Performance of Services Index (PSI) for November | 4:25 AM
    • Australia Indonesia Business Councils biennial conference Australia Indonesia Business Councils biennial conference | 4:27 AM
    • ABS ABS national accounts, including gross domestic product, for the June quarter | 5:42 AM
    • 04
    • NUF Nufarm annual general meeting | 5:22 AM
    • ABS ABS international trade in goods and services for October | 6:46 AM
    • ABS ABS retail trade for October | 8:48 AM
    • ABS AOFM to issue $500 million of Treasury notes that mature on April 24, 2015 | 8:49 AM
    • 05
    • AOFM AOFM to issue $700 million of April 21, 2026 Treasury bonds | 4:05 AM
    • ABS ABS Overseas arrivals and departure for October | 4:24 AM
    • PMV Premier Investments annual general meeting | 4:27 AM
    • SOL Washington H Soul Pattinson annual general meeting | 4:28 AM
    • PCI Australian Industry Group/Housing Industry Association performance of construction index (PCI) for November | 6:09 AM
    • ORG Origin CEO Grant King to provide company update and discuss energy sector at American Chamber of Commerce in Australia event | 8:48 AM

TheBull.com.au

TheBull.com.au

TheBull PREMIUM article search

STOCK QUOTE

Don't know the company code? Click here



Featured Comment

Low wages growth, rising unemployment and shaky consumer confidence suggest property-price growth, already slowing, will decline in 2015. Lower house prices would weigh on dwelling investment and consumption.

Cheap property stock to watch

Broker buys

  • ASX Code
  • Company
  • Broker
  • TPMTPG TelecomCalibre
  • VEDVeda GroupCalibre
  • LLCLend LeaseAlpha Securities
  • MQGMacquarieAlpha Securities
  • OSHOil SearchPhillipCapital
  • CWNCrown ResortsPhillipCapital

Broker sells

  • ASX Code
  • Company
  • Broker
  • MINMineral ResourcesCalibre
  • AGOAtlas IronCalibre
  • MYRMyerAlpha Securities
  • CCLCoca-Cola AmatilAlpha Securities
  • QANQantasPhillipCapital
  • MINMineral ResourcesPhillipCapital

Central Banks Rates

  • RBA2.50%
  • FED0.25%
  • BOE0.50%
  • BOC1.00%
  • RBNZ3.25%
  • ECB0.15%
  • SNB0.00%
  • BOJ0.10%

Upcoming dividends

  • ASX Code
  • Company, Div., Franking
  • Ex-Div.

Eight brokers like these stocks

  • ASX Code
  • Company Name
  • Consensus Target
  • DOWDowner EDI Limited$5.78
  • FMGFortescue Metals Grp Ltd$6.89
  • ORAOrora Limited$1.51
  • RIORio Tinto Limited$81.22
  • CSLCSL Limited$73.30

Upcoming Floats

  • ASX Code
  • Company Name
  • Float Date

PLEASE SUPPORT OUR SPONSORS, AUSTRALIA'S LEADING BROKERS:



© Copyright The Compare Group Pty Ltd. All rights reserved.