AFA Battle Challenges Association’s Relevance

Industry debate over the handling of the Life Insurance Framework has the potential to place a sector of the advice profession on the outer for many years, according to Paragem Managing Director, Ian Knox.

In this column, which first appeared at New Investor, Knox states the LIF legislation was already heralded by the Future of Financial Advice reforms and pushing back against it involves resisting the wider cultural change moving through the industry.

Paragem MD Ian Knox

Paragem MD Ian Knox

It appears that some disgruntled advisers in the Association of Financial Advisers are so keen to preserve their stature that they are in grave danger of doing the very opposite by tearing down their own association under the nose of a watchful government and its regulators.

Given the importance and value of a membership body to its constituents, this is an extraordinary outcome where individual judgement appears to have become so clouded it cannot see the future.

In this instance the future is even embedded into related policy through the words ‘Future of Financial Advice’ – so there’s a strong clue that change is underway, is being called for and is not about to be recalled to the negotiating table to preserve the good old days.

For the past few weeks a group of financial advisers who are members of the AFA have been publicly lobbying for an extraordinary general meeting of the association with the purpose of gaining membership authority to water down the policy making powers of their own elected board.

This scenario is bizarre to say the least given the board has delegated authority based on the directors’ expertise, judgement and undoubted inclusiveness with members. To refute that refutes the very process of governance. Why not work on that if there’s a grievance?

“Regrettably, the stoush has become public with little regard for damage to reputation…”

Regrettably, the stoush has become public with little regard for damage to reputation and now the association is looming as a lame duck once the dust settles and no one wins.

The main objective behind the disgruntled members appears to be structuring the association in such a way that the board cannot negotiate a position with the government of the day on major policy matters without consent from the majority of members.

Unfortunately in real life this means having a neutered board which is unlikely to attract any executive calibre and it seems intent on a democratic process that focusses internally not externally on matters of structural significance.

The stoush is all about a lot of the members feeling their board has not achieved a satisfactory outcome with their need around legislation impacting the Life Industry via amendments outlined in the Life Insurance Framework (LIF).

This framework took its clue from FoFA and was ushered in via a consultative process under the watchful eye of an independent eminent person – John Trowbridge, and involved more than the AFA.

In fact, it sought out input from the entire industry before making its judgement and by any reasonable standards this would have meant compromise by all parties to move forward.

Significantly, John Trowbridge made it clear at outset that consumers were at the heart of change as much as policymakers and that the outcome had to meet this criteria – not prioritise the status quo for the benefit of the sales and manufacturing arms of the life industry.

In these circumstances and given the government’s mantra, the existing board had little room to negotiate – whatever the membership need. This is a very difficult reality check for all to consider.

All the other associations got on with the spirit of intent, the reality of government needs, even the manufacturers bought into the changes. But not, it would appear, enough for members of the AFA who seem to feel betrayed by their association acting in line with the rest of Australia.

This questions whether the rest were wrong or perhaps whether the AFA could have stood outside and commanded more attention?

So the proposed solution and the danger? Change the constitution and demand a broader member engagement, which could demand an unworkable policy such that the association is just earmarked as a basket case for future years. Presumably some thought would have gone into this.

“The long-term danger… is that the AFA is unlikely to be a serious reference point for the industry.”

The long-term danger if the association does pursue and wins its EGM case is that the AFA is unlikely to be a serious reference point for the industry.

Accordingly, advisers could conceivably move in time to a single body like the FPA which is chartering a more sensible course of individual professionalization of membership. It’s a higher moral ground to effect change – and from a consumer advocacy position it’s right on course. No wonder the FPA is keeping quiet now.

Also the fragile revenue base of the AFA could be challenged by sponsors smelling the decline and distribution value of yesterday’s thought leaders. This means conferences will be questioned and content ignored.

The ironic twist with all this is many advisers in the industry feel the AFA has tended to reflect the so called ‘Lifies’ of yesteryear and that the AFA board has done an incredibly good job energetically drawing in young blood by introducing the Gen X principal.

One can but hope the young blood and sensible members now take a stand against the aggrieved party members and vote their proposal out – otherwise they might not have an association worthy of their values in future times.

One thing’s for sure: there isn’t going to be a soft landing for anyone with the strings that are being pulled at present. Normally that signals a loss of common sense and high emotions.

Let’s hope there’s a shift in mindset and that the embarrassment of a neutered irrelevant board doesn’t eventuate. The whole planning industry is on the right wave at the moment and arguing about the need for a longboard isn’t what’s needed in the world championships.

This article first appeared at New Investor, published by Shed Social.

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  • NobbyK

    Seems like no-one will win.
    If one person voices their opinion, some-one else will voice theirs saying the other is wrong. Damned if you do and damned if you don’t.
    Only in this case, there is a clear case that the consumers whom this (LIF) is supposed to provide a better outcome for, don’t actually get one. So the change is clearly not relevant!

  • Robert Coyte

    People are entitled to an opinion but to say that advisers are “disgruntled” and they can not stand up for what they believe so the AFA or other profesional bodies can supposedly save face with the government or public is weak and self centred. Something I would not expect my adviser to be if I were a paying client.

    The stoush is not about the “outcome” but rather the “process” and the fact that advisers feel they have not been able to throw any punches in a fight that was rigged in favour of the big insurers.

    • Gav

      Exactly Robert. It’s about process. Lack of consultation specifically.

  • Jeremy Wright

    I find it incredible, that people who should know better, are continually putting their names and reputations in jeopardy, by lecturing from their pulpit and coming up with little substance and a lot of false accusations.

    Ian Knox has come out defending an association that is indefensible in its actions and lack of action to counter and remedy, what has been disgraceful behaviour.

    It would be interesting to dig a little deeper to find out why Ian has made his statement, or on what context, as he bows to Trowbridge’s statement and agrees that “Consumers were at the heart of change, as much as policy makers and that outcome had to meet this criteria”, which is noble and is what we all want, yet then like a lemming, he is prepared to blindly follow an out of touch AFA over a financial cliff that will severely impact advisers practices to the point of not being able to recoup expenses, while the beaurocrats in the AFA have feathered their own nests, by encouraging compulsory and expensive membership, while drawing large salaries to do a bad job for consumers and the members whom they purport to represent.

    Ian, you seem to be either; too far removed from the real world of retail Life advice, have a vested interest in promoting a disgraceful set of proposals, or someone who does not have the courage to stand up for what is right.

    If you want to put forward your thoughts, have the decency to back them up with facts of what you espouse.

    For instance tell us what, if any benefit the consumers will get from the proposed LIF regulations and what great things the AFA have done over the last few months, prior to and after the election, to bring to light supposed improvements to consumers and adviser practices, rather than the lame excuses that it could have been worse.

    Ian, you are a contributing reason we are in the situation the retail Life Industry finds itself, in that you are more prepared to blindly allow lobby groups that have only their best interests at hearts and stuff the rest of Australia, to grow like a cancer, while a few conscientious people, at great cost to their business, are out trying to remedy and repair a set of misguided proposed regulations that will not deliver one improvement to
    consumers, while throwing reputable advisers in the garbage heap and for all
    Australians to lose their only true representation, from first contact, right through to claim time.

    Your last comment that the whole planning industry is on the right wave at the moment, shows you are out of your depth when it comes to retail Life Insurance advice and unless you can come up with a constructive argument that looks at all aspects of these issues, in a factual manner, then please keep your opinion to yourself.

  • Old Risky

    Mr Knox is a licencee. Apart from his support for a malfunctioning AFA Board, what else does he know about LIF

    Why is he not worried that the 50% reduction in adviser income somehow will not impact on licencee revenue. Even if he charges a flat fee & not a % of commission, he wont last long and he wont get new advisers. And he needs those new advisers to stay and ultimately buy out his retiring advisers. If the retiring advisers have no market, his renewal commission will drop off by 25% in the first year the adviser retires !!!

    Have Licencees swallowed the ASIC line that mums & dads will pay $1200-$2000 for risk advice

    Tell him he’s kidding !
    Bill Brown