Types of Commissions in the Financial Service Industry

 

Trail commissions:

Before the financial planning industry focused on providing advice rather than just product sales, trail 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.

The question for most people is what can be done if you are not getting any ongoing advice or service or have invested directly with the fund manager?

Generally there is no way trailing commissions on superannuation, allocated pensions or managed investments can be avoided. They are built into and paid out of the management fee charged to your investment by the fund manager (also known as management expense ratio (MER)).

It is just a question of who ends up getting them!..an Adviser you do not receive service from or indeed don't know or simply retained by the fund manager.

 

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 in force and are normally paid as the premiums are paid i.e. monthly premiums would generate monthly renewals whereas annual premiums generate annual renewals.

These renewal commissions can be anywhere from 5% to 30% of the premium you pay and are paid to an agent who sold you the policy originally and who you may not now deal with or receive any service from.

 

The following table is a guide and example to demonstrate the nature and extent of commissions that could be received.

 

Commission Type What is it? How much is it? Commission Paid
Managed Funds From the management costs, the provider will pay us a funds under management based commission. This fee is based on the amount of funds under management.

Up to 0.44% (includes GST).
Investment $50,000 x 0.44% = $220 (GST $20)

Available refund* = $200
Cash Management Trust From the management costs, the provider will pay us a funds under management based commission. This fee is based on the amount of funds under management.

Up to 0.275% (includes GST).
Investment $50,000 x 0.275%= $137.50 (GST $12.50)

Available refund* = $125
Personal Superannuation From the management costs, the provider will pay us a funds under management based commission. This fee is based on the amount of funds under management.

Up to 0.60% (includes GST).
Investment $50,000 x 0.60%= $300.00 (GST $27.27)

Available refund* = $272
Personal Insurance All payments to us are made from the premium paid by you and are not an additional charge to you. Commission paid - 15% pa of the insurance premium received by the insurer Annual premium $2,000

$2,000 x 15% pa = $300 (GST $27.27)

Available refund* = $272

* Available Refund excludes any MYMONEY administration fees.