The racket that is most of the Australian fund management industry is raising a stiff middle finger to ASIC over the dubious practice of “shelf-space fees” whereby fund managers are charged a tidy sum to get their products on financial planners’ sales lists.

It’s a concept stolen from our big retailers – paying to have products made available for sale – but customers at Woolies and Coles aren’t expecting the checkout chick to give them independent and professional advice on the most suitable peanut butter for their needs.

The racket and ASIC’s unease about it have been around for a while, but it receives a nice warming over by Brendan Swift on the front page of today’s AFR:

Fund managers are being pressured to pay hundreds of thousands of dollars in extra fees to have their products sold by financial advisers, snubbing the corporate regulator’s crackdown on such payments.

Popular investment platforms…and financial planning dealer groups are raising a range of “shelf-space fees”. These fees are paid by fund managers and are supposed to cover the costs of training financial planners and providing administrative support services.

Well, that’s the theory. The Fin gives several examples of the racket:

The $25 billion BT Wrap has angered fund managers with a proposal that would have them give up 41% of their retail investment management fee through a rebate structure, which BT will split with major dealer groups such as Count Wealth, according to sources.

St George Bank’s Asgard Wealth Solutions is conducting a tender process that will give eight to 12 fund managers preferential access to its 900-strong financial planning force as well as other rewards for an upfront payment of $200,000.

Professional Investment Services, which vies with AMP Financial Planning as the largest financial planning dealer group in Australia, recently introduced a mandatory $4,400 fee it would charge each funds management product to cover the cost of research. However, it does not guarantee a place on its approved product list which contains several hundred products.

AMP’s premier advice arm, Hillross, generally charges maximum flat fees of $20,000 and a bonus commission of 20 basis points to more than 90 per cent of the fund managers on its approved product list.

And so it goes. What’s ASIC doing about it? “Consulting with the industry”. Good luck.

It’s just one more example of how the sales force tail is wagging (and, in the process, shaking down) the trillion-dollar industry dog. Distribution, rather than performance or quality, is king.

Peter Fray

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