In a financial planner's world there are two types of dollars: hard and soft.
A soft dollar may sound like something in need of a dose of Viagra, but in the world of financial planning and life insurance it is part of the inner workings of an industry that understands the relationship between rewards and returns.
Last year funds management and life insurance companies took their top performers to various parts of the world to attend conferences to advance their professional development. The venues included nice regional destinations such as Port Douglas and New Zealand, as well as Alaska, St Petersburg, Copenhagen and Colorado Springs. One major institution even booked out a luxury cruise ship for a jaunt around the South Pacific.
Tough work if you can get it.
For investors, the issue is how much the lure of meeting a monetary target to qualify for an overseas trip influences the investment recommendation.
More importantly, from the Australian Securities and Investments Commission viewpoint, were these soft-dollar payments or rewards fully disclosed to investors?
In July, ASIC released its model for improved fee disclosure on investment products. It was based on work done by Professor Ian Ramsay , dean of law at Melbourne University, and it recommends that all fees be disclosed on a consistent basis in two standardised tables.
But the Association of Superannuation Funds of Australia (ASFA) released research showing that consumers do not understand the ASIC fee model and that "virtually all respondents were out of their depth in calculating total fees or even the likely significance of different fees'', chief executive Philippa Smith said.
Clearly the industry still has some work to do to get the disclosure of product fees right.
The disclosure and the setting of a reasonable level of benefits is the real challenge.
Would a business lunch or tickets to a sporting event influence an investment recommendation, for example?
Probably not.
How about first-class air fares and a week's accommodation at the Olympics in Athens?
Robin Bowerman is head of retail at fund manager Vanguard Investments Australia. He can be contacted on robin.bowerman@vanguard.com.au.
