Concern about investment commissions

The funds management industry in Australia is expanding at a rapid rate, growing from 50 per cent of GDP in 1990 to $1.7 trillion or 160 per cent of GDP now. In a speech yesterday the deputy governor of the Reserve Bank of Australia, Ric Battellino, said that he was concerned that investors appeared to prefer to pay for advice on a commission basis rather than an up-front fee. “This reluctance to pay for advice up front appears to be a form of money illusion, whereby investors may feel they are somehow paying less for financial advice if the cost is buried in reduced earnings in the future,” he said. Mr Battellino asked whether disclosure statements were sufficient to make people aware of potential conflicts of interest when taking advice on a commission basis, or if there would be merit in the industry moving more towards a fee-for-service basis.