01.Commission rebate companies
- You can choose who receives the sales and advice kickbacks from your investments.
- Weigh up the pros and cons before making any changes
Would you like to receive hundreds of dollars from your super fund or insurance each year, without changing your investments or policies? Many Australians could do this, thanks to fee rebate companies. They are part of a fast-growing industry that has emerged to help recover the hidden commissions many unwittingly pay as part of insurance, superannuation policies, home loans and investments.
CHOICE reviewed the market to find the best offers and discovered not all rebate companies are created equal.
Please note: this information was current as of December 2009 but is still a useful guide to today's market.
What did we discover?
If the trail commissions on your super fund are 0.5% per year, and your fund has a balance of $50,000, the refunds you receieve could be worth over $100 per year. Commission refunds are also available on managed funds, life insurance policies and other financial products.
Products that pay commissions
- For-profit retail super funds usually owned by banks and insurance companies.
- Most managed funds.
- Life insurance arranged by a financial planner.
- Home loans arranged through a broker.
- General insurance — commissions can apply and vary widely.
Products that don’t pay commissions
- Industry super funds.
- Index funds.
- Investments that are traded through a listed market such as the Australian Securities Exchange (ASX), including shares, exchange-traded funds and listed investment companies.
How the industry works
Most large financial product providers in Australia are banks, super funds and financial institutions that use financial planners and advisers as their sales force, paying them a commission from your investments in return. So, if you’ve invested in a managed fund, life insurance policy or super fund arranged by a financial planner, chances are part of your money is paid to that adviser as a kickback.
The most common payments are an upfront commission, which creams off a percentage of your initial investment and future contributions, while trail commissions are annual payments based on the balance of your funds. In some cases, advisers may be earning these payments by providing you with ongoing advice, regular appraisals of your investments and strategy, and other services. However, some people get no value for these fees. CHOICE spoke with members who indirectly pay commissions each month to a financial adviser they’ve never even met, and in one case to a planner who had died — the commissions continued to flow from an employer’s default superannuation fund.
If this sounds like you, you can choose not only where your money is invested, but who gets the commissions. You could either switch to a lower-cost investment that doesn’t pay commissions, or stay put and transfer your “broker authority” to a commission-rebate company. We scoured the market for rebate providers and show details of 11 in the table, although new ones are popping up all the time.
These companies generally offer a no-advice service; they simply request details about you and your investments or policies, and contact the product providers to request entry fees be reduced (usually to zero) and future trail commissions be paid to them instead of your present adviser. The rebate company then shares the trail commissions with you — to varying degrees.
Finding the best-value rebate company depends on the funds they cover, which commissions and what percentage they refund, their fees and the value of your investments. Before transferring your broker authority to any company, make sure you read its Financial Services Guide, which explains the key things you need to know.