Commissions are effectively banned on all financial products (except personal life insurance policies) by no later than 1 July 2014. If a retail client establishes a new master trust or wrap account type product after this date, commissions cannot be paid to a financial planner. If the financial product concerned is a direct investment (i.e. not through a platform), commissions cannot be paid if a retail client invests money for the first time after 1 July 2014 into the product.

Entry fees

  • Entry fees are calculated as a percentage of the amount you invest each time you plonk money into an investment account.
  • The average entry fee is around 2% while some advisers earn much less.

Example of the impact of entry fees on your investment
If your adviser charges a 2% entry fee, then each additional investment earns them a payment equivalent to 2%. On a $10,000 investment, this represents a $200 fee. It also means you have a balance of $9,800 - rather than $10,000 working for you in the account.

Trailing commissions

  • Trailing commissions are calculated against how much money you have invested in a particular product.
  • They are incentives paid to advisers to encourage them to continue to monitor and service clients' financial planning needs.
  • Given trailing commissions are charged against the value of an account - rather than additional investments - the size of the trail grows (or falls) in line with an account balance.
  • The average trail commission is approximately 0.35% per annum.
  • Also trailing commissions are generally paid from investment fees paid by investors to a fund manager and so on. As a rule of thumb, the lower the trailing commissions, the lower the investment fee.
  • These commissions still apply to most investments entered into before 1 July 2014.

Example of the impact of trail commissions on your investment
A trail commission of 0.35% per annum means that for every $100 000 you have invested, the financial adviser receives a commission - a fee - of $350 annually.

Soft dollar incentives

  • Non-monetary incentives are also banned, such as overseas trips, prizes, marketing allowances, and gifts.
  • Small incentives (below $300 in value) are not banned provided they are not given on a frequent basis.
  • Benefits that are predominantly educational or training-based (at least 75% time based) are not banned either, assuming the provider does not pay for travel or accommodation for the financial planner to attend.

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