Commission Refund Services

By Author: Tom Miyashiro
Total Articles: 1
Comment this article

Before the financial planning industry focused on providing advice rather than just product sales, trial commissions were introduced to encourage the sales person to keep the products in place.

As the industry moved to providing financial advice the trail commissions were justified as providing remuneration to the adviser for ongoing reviews and advice.

There are commission refund and rebate services available to recover these fees. An example of how they work are as follows.

1. The types of commissions that are paid
Commissions fall into two categories - up front and ongoing.
Upfront commissions are those paid at the time of the product being bought and usually come out of the capital invested.
Trail commissions are generally paid out of the management fee charged to your investment and most companies pay this monthly.

2. Insurance commissions are different
Upfront commissions, as with investment products these are paid at the time the product is sold.
Renewal commissions are generally paid after the first year anniversary of the policy being inforce and are normally ...
... paid as the premiums are paid i.e. monthly premiums would generate monthly renewals whereas annual premiums generate annual renewals

3. The level of commission normally paid
Upfront commissions can range from 0- 4% but some specialist funds can be higher. Tax effective products can pay 10% or more in commissions.
Trail commissions can be as low as 0.1% on some cash management products but as much as 0.6% on many superannuation funds.
Insurance policies pay up to 130% of the first year's premiums as commission and 10% per annum renewal premium. However, some policies, particularly when written in superannuation master trusts can pay 20% to 30% per annum commission.

4. You often cannot turn off commissions
Where the commissions get paid from your account (as is the case with most wrap accounts) you may be able to direct the Manager to turn off the fee. However, where the commission is paid from the management fee as is the case with most retail superannuation funds and insurance policies, you, as the product owner, cannot direct the payment to be turned off.

5. Commissions will not disappear in the future
The likelihood is that at some point in the future commissions may be removed from all new products sold - the Financial Planning Association is advocating 2012 as the date for this. However, existing products will remain unchanged as the cost and complexity of systems changes will be prohibitive. Therefore, it is likely that any products that you own which pay trail commissions today will continue to do so for as long as you own the product.

6. Commissions can be difficult to track accurately
By their nature, trail commissions are made up of lots of small payments paid at least monthly. A robust technology platform and experience is required to accurately track and account for all payments.

7. Offsetting against fees is not enough
Many financial planners offer to offset commissions received against fees that are to be paid. The key question to ask is, What happens to these commissions should you choose not to continue paying for ongoing service in the future?

A commission rebate service gives you control over commission payments.

Once you nominate a commission rebate service as your designated intermediary any commissions payable will come to the commission rebate service.

Most commission rebate services these payments and at the end of each month the funds will be deposited directly into your nominated bank account.

Key Features of some commission rebate services are:
No or low joining fees
Max annual fee of $240 covers all the products for a family group.
Detailed online reporting.
Monthly activity statement
Monthly payment direct deposit.
Online registration

This article was provided by a commission rebate provider in Australia. They help brokers manage their income through theircommission refund service.