AMP Financial Services has announced it will remove inbuilt commissions on new investments sold from July 2011 and replace them with a clearly stated fee for an agreed level of advice and service.
The move to abandon commissions in favour of upfront fees for service and advice is the first unilateral move by a major fund manager in New Zealand to remove such commissions across the board. It will shake up the debate around commissions being received by financial advisors selling investments.
Many financial advisers have been roundly criticised by investors for putting them into finance companies in recent years and receiving large upfront commissions, sometimes without informing customers. The government and the industry has been reluctant until now to force fund managers to drop commissions.
AMP Managing Director Jack Regan told a news conference AMP had held back from the move for some time in the hope either government or the industry would mandate or legislate the removal of commissions.
"We thought there might be some move in that direction, but nothing seemed to be happening particularly quickly," Regan said.
AMP said its decision to remove commissions came after it commissioned a survey of investors that found only 23% trusted financial advisers to be independent, while 43% were indifferent about financial advisers and 33% said they did not trust financial advisors.
AMP's move follows similar moves by many fund managers in Australia to replace up-front commissions with fees for service ahead of a government plan -- yet to be legislated -- to block such commissions.
AMP said it would not change its commissions structure for life insurance, given the risk of any misselling in life insurance was borne by the insurer rather than the customer.
Advisors would set the fees to be agreed with customers. They could either be a fee paid per hour or for a specified plan or as a percentage of funds under management. The agreed fees in Australia ranged around 0.7% up front with a further 0.7% as a trailing fee each year.
(Updated with further details)
2 Comments
We shall see on this one... what will investors do? The commission model developed because investors liked it... it remains to be seen whether investors will like this new payment structure or not - the problem is commissions were hidden from view and thus investors didn't really know what was going on, which suited them.
Making it an explicit fee solves for the transperency problem but will consumers like it.
Just because a survey says consumers don't like something doesn't mean they will like the alternative any better
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