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Master trust fees ‘deceiving’

A NO entry fee slogan on a master trust can be deceiving, says Financial Planning Association WA chairman David Powell.

Mr Powell said master trusts, offered by nearly all major financial service providers, were about getting “beans into buckets”.

He said to maximise the funds that came to them, they offered incentives to financial planners to push their products.

“Product manufacturers are trying to find easier ways to get advisors to push their products,” Mr Powell said.

“These trusts allow advisors to garnish client funds for fees. It allows the master trusts to pay the advisors in a more clandestine way than I would like.

“This industry is all about disclosure. The regulators push it on us. Yet these funds make it easier for advisors to avoid this disclosure.

“Advisors are getting paid far too much. The product manufacturers are putting temptation in their way.”

Some funds charge investors an entry fee – usually about three per cent or four per cent of funds under management goes to the advisor as a commission.

Mr Powell said in the case of no entry fee funds, the entry fee was replaced with a withdrawal fee – usually for a four year period – and an extra level of management fees.

These management fees are often known as trailing commissions and can range from about 0.3 per cent to one per cent.

“The advisor still gets his four per cent commission but it comes from about a one per cent a year ‘service fee’,” he said.

Mr Powell said these fees were in the funds’ prospectuses but not clearly spelt out.

Plan B director Craig Lubich believes investors do not sufficiently understand the true cost of no-entry fee products.

“They usually go into these products thinking there is no cost involved,” Mr Lubich said.

“I don’t believe investors or financial planners fully understand their implication.”

Investment and Financial Services Association deputy CEO Richard Gilbert said as long as the trailing commissions were transparent, his organisation was not concerned.

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