Luxury trips that come with a hidden price tag

fund manager has an annual management charge of 1.25 per cent. It might have been slightly cheaper if the head of product development at our firm and several other firms hadn’t taken an educational trip to Cape Town, paid for by this manager.’’

It doesn’t roll off the tongue well. Push delete.

That’s how these trips are often dressed up. As education. It’s a smoking braai when you hear those words. Genuinely, education could be involved. Cape-treat had a two-hour informative session complete with croissants and hangovers. I can think of one or two cheaper methods.

Therein lies the problem for financial companies dishing out these trips.

Where is the line? How much ‘‘education’’ is acceptable? When do the presentations stop and the helicopters start? It’s so subjective every chief executive and compliance officer should run a mile.

The New Zealand insurance industry has recently come under fire for soft commissions linked to sales targets. Some have stopped (well done AMP).

On a practical level, if soft commissions are just replaced by higher wages, bonuses or greater payments to advisers, your insurance premium won’t fall, so who cares? Is it really affecting us?

Indeed it is. If there is any sniff an adviser or salesperson is influenced to sell a certain policy, a higher level of cover or switch policies, there is no way of proving client interests drove the decision. Transparency is crucial. Soft commissions come in many forms, not just a Fijian lei. If insurers, fund managers or brokers cover an adviser’s business costs, marketing or training, it’s a form of soft commission.

If they have to tender to be on a panel, it’s soft commission. If they provide ‘‘free’’ research access to place trades through a broker, it’s soft commission.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.