Financial planners at National Australia Bank have been warned to brace for big cuts to their commissions-based income, as a slowing market, higher consumer expectations and new regulations trigger changes to companies’ pricing structures, according to an internal document.
The adjustment, to begin in December, will likely send shockwaves through the ranks of senior financial planners who for years have enjoyed a steady income thanks in part to percentages earned on previous sales – with the clients themselves often unaware of the ongoing costs.
“Whether it’s right or wrong to have been sitting on these books, to suddenly have your [the financial planners’] revenue cut in some cases by 50 per cent, it doesn’t allow you to continue to live the life you’ve been budgeting for,” said one financial planner.
“Having it taken away with a couple months’ notices will be a challenge for some people – that’s for sure.”
The change will end the practice of ongoing commissions generated by past sales of products, which in some cases are passed from one planner to the next upon retirement. That revenue has helped financial planners achieve monthly sales goals by NAB financial planners, keeping their incomes high.
“Since the global financial crisis in 2007, markets have been and remain subdued,” according to an NAB employee briefing obtained by BusinessDay. “‘The growth experienced in the preceding decade is unlikely to return.
“Subdued revenue puts immense pressure on our cost base.”
The briefing also hinted that customer inertia could no longer be counted on to ensure revenue.
“Increasingly, more customers are demanding value be delivered, and where actual value is not deemed to be sufficient, customers are moving relationships, accounts and holdings to other providers where the value exchange is deemed more equitable,” the document said.
It noted that clients, defined as generating more than $1320 per year in revenue for NAB, “do not always receive the services we received a fee for”.
The NAB briefing said 15 per cent of customers surveyed said they would opt out of their current adviser relationship. A further 40 per cent said they were unsure about sticking with their current provider.
Attrition rates across NAB’s book were “above average” with a “significant percentage” of superannuation accounts dormant, the NAB document said.
The changes will lead to a dramatic reduction in pay for some financial advisers.
“We are empathetic that these changes have a personal impact on people,” the briefing said.
Under the proposed changes, clients will receive “scaled” services, with high-needs clients getting direct advice. Customer who need less advice will be serviced by phone-based advisers.
The changes will also bring NAB into line with planned Future of Financial Advice reforms.
The NAB financial planner, who asked not to be named, said the NAB changes would prevent clients potentially paying hundreds of dollars a year in fees to get “bugger all” for service. At the same time, he said, senior financial planners would no longer receive revenue that added to the bonus targets, just for “getting out of bed”.
MLC advice and marketing executive general manager Richard Nunn, who speaks for NAB’s financial planners, said the changes put the company at the forefront of the industry’s evolution.
“NAB Wealth has led the industry in championing for increased transparency within advice relationships,” he said.
“This latest move keeps us ahead of key legislative changes such as the Future of Financial Advice reforms and in step with evolving customer behaviour.
“These changes will ultimately improve our clients’ ability to access quality financial advice from the NAB Wealth network,” he said.
About one in five Australians receives financial advice, according to the office for the Minister for Financial Services and Superannuation.
However, the availability of investment information has created more savvy customers in recent years who are willing to rely less on professional advice, even as the demand for more products grows.
The Future of Financial Advice reforms, which prohibit conflicts in financial-planner pay structures and expand the availability of low-cost “simple advice”, took effect in July and will become mandatory for the industry in July 2013.
This story Administrator ready to work first appeared on Nanjing Night Net.