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 next month, 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," one planner said.
"Having it taken away with a couple months' notice 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.
"Since the global financial crisis in 2007, markets have been and remain subdued," according to an NAB employee briefing on the proposed changes obtained by BusinessDay. "The growth experienced in the preceding decade is unlikely to return.
"Subdued revenue puts immense pressure on our cost base."
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. Customers 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 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.
"These changes will ultimately improve our clients' ability to access quality financial advice from the NAB Wealth network," he said.
The 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 next year.
Frequently Asked Questions about this Article…
What change is NAB making to financial planners' commissions?
NAB is ending the practice of ongoing commissions generated by past product sales. According to an internal briefing, the bank will move away from commission-based income streams that have previously paid planners a percentage on old sales, including payments that in some cases were passed from one planner to the next on retirement.
When will the commission cuts for NAB financial planners start?
The article reports that the adjustment is scheduled to begin next month, according to an internal NAB employee briefing obtained by BusinessDay.
Why is NAB cutting ongoing commissions for planners?
NAB cites a slowing market, higher consumer expectations, subdued market growth since the global financial crisis, pressure on revenue, and new regulations as reasons for changing pricing and adviser pay structures. The briefing also notes cost pressures from subdued revenue.
How big could the income cuts be for some NAB financial planners?
The internal document and planner comments indicate the changes could be significant for some advisers — one planner said revenue could be cut by as much as 50% in some cases.
How will NAB service clients after the reforms — will advice levels change?
NAB plans to introduce 'scaled' services: high‑needs clients will receive direct, face‑to‑face advice while customers who need less help will be serviced by phone‑based advisers. The briefing says services will be aligned to client needs.
What did NAB find about client reactions to the proposed adviser changes?
NAB’s briefing said 15% of customers surveyed said they would opt out of their current adviser relationship and a further 40% were unsure about staying with their current provider. The document also noted above‑average attrition rates and a significant percentage of superannuation accounts were dormant.
How do these NAB changes relate to the Future of Financial Advice reforms?
NAB says the changes will bring it into line with planned Future of Financial Advice reforms. Those reforms prohibit conflicts in financial‑planner pay structures and expand availability of low‑cost 'simple advice' — the reforms took effect in July and are due to become mandatory for the industry in July next year, according to the article.
What does NAB (and its MLC executive) say about the impact on clients?
Richard Nunn, MLC advice and marketing executive general manager who speaks for NAB’s planners, said the changes put the company at the forefront of the industry’s evolution and that they should improve clients’ ability to access quality financial advice from the NAB Wealth network. The briefing also acknowledged the personal impact on planners facing reduced pay.
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