This is an update to a blog posted nearly 2 years ago and the issue is still being discussed, but in relation to finding a Financial Planner what does and should matter to you, the client?

The topic of fees versus commission was written about by every financial columnist over the past 2 – 3 years, but more so during the height of the Global Financial Crisis.  The call being for fees to be the method of payment – by the client, and commissions – payable by the product provider being stopped. 

In a nutshell financial advisers receive payment from their employer, the client, through either commissions or by charging a fee for the service provided. The fee may be fixed or based on an hourly rate, or a combination of both which is used by many financial advisers. In reality the client pays the commission – the product provider will recoup this amount from the fees they charge over time anyway.

So what should you look for in terms of fees when seeking out a financial adviser?  There are plenty of independent websites and organisations that can give you tips and advice, so look around and do your homework.  But what’s important here is that consumers should be given a choice.  Not all consumers want to pay fees for services up front and are happy to pay adviser fees in the form of commissions. 

Providing clients are kept informed of commissions and fees, such a strategy may suit a client.  The down side is that advisers may be influenced to recommend investments with higher commissions and the client may not always be told of alternative investments that may be equally as good with lower fees.   An adviser may also continue to receive trail commissions even if a client chooses to no longer use their services but retain their investment.  However recent changes to a number of product providers means that the client may be able to turn off trailing commissions where there is no service being provided - this is a great thing for consumers.

When engaging an adviser who charges a fee for service, make sure you discuss and agree on the costs to be charged.  Charging directly for a service is a good incentive for a planner to give good advice and service but costs come straight out of your pocket and are often charged in advance.

While there will always be a debate of the pros and cons of commission versus fees, scrapping commission completely from the industry removes the right for consumers to choose.

The true issue is transparency.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.