Does the introduction of a statutory fiduciary duty to act in the client's best interests overcome the need to introduce client opt-in measures?
- Yes (77%)
- No (19%)
- Not sure (4%)
While advisers have clearly indicated their concerns over a client opt-in structure under Future of Financial Advice reform proposals, they have voiced little to no objection over the proposed introduction of a statutory fiduciary duty requirement that advisers act in the best interests of their client.
Our latest poll questions asks:
Does the introduction of a statutory fiduciary duty to act in the client’s best interests overcome the need to introduce opt-in measures?
According to the Government’s own briefing document, its Future of Financial Advice proposals contain three key reforms:
- A prospective ban on conflicted remuneration structures
- The introduction of a statutory fiduciary duty requiring advisers to act in the best interests of their clients
- The introduction of adviser (opt-in) charging regime
While there are numerous other reforms under FoFA, these are the three highlighted by the Government.
But since the announcement of the FoFA reform proposals on the ANZAC Day holiday last year, and the subsequent industry debate and consultation, more advisers, dealer groups, fund managers and life companies seem to be questioning whether the first two of these key reforms (banning commissions, fiduciary duty) make the third key reform (opt-in) less relevant or even redundant.
The argument is that if an adviser has a statutory duty to place their client’s interests first at all times, and if they must in future charge a fee for all investment and superannuation advice, why is it then also necessary for an adviser to be forced to receive client consent via an annual renewal notice in order for that client to continue to receive and pay for financial advice?
The counter argument runs that unless an adviser charging regime, which includes opt-in, is implemented, there will not be sufficient clarity surrounding the nature of the adviser/client relationship and the rules under which the adviser should be remunerated. This in turn could lead to confusion and lack of client confidence in an industry whose reputation has been damaged by corporate collapses.
There are administrative and other issues associated with the opt-in reform proposal, but in terms of its principle, given the fact that commissionswill be banned and fidiciary duty will become enshrined into law, do you believe the introduction of an adviser charging (opt-in) regime is necessary?
Let us know what you think…
Add your comment now
12 Comments
Th concept of acting as a fiduciary has always been a fact of “advising life” under the corporations act, why the ho ha over a formal intro, it has always been there, or maybe the proposers are a not up to date with facts. It is a new word to some.
When one sits in the perfect world of those trying to solve the imponderables of the perfect consumer protection regime, with the political agenda implicit and behind the regulators,what else can one expect but interventionist zealotory.
Again the change without understanding…or even wanting to understand… the full implications is mere collateral to the intended outcome of market purity. Once up, this proposed legislative change will be a tick box to wrap in risk, and then try and read the collateral. Unimaginable!!
Keep talking to our Pollies… some are listening.
Opt in will be pointless and just add an adittional cost to the advice process due to the administration burden it will add. Given clients have an opt out option, why do you need this???
I can’t see what the issue is? We have always presented the majority of our clients with an invoice for the intended service for the next twelve months.(no commissions) To date none have refused to pay and/of terminated our services. And what’s more it is not an added cost to our practice, rather just a normal item to be attended to each year.
My concern is the legacy clients I have form 10 to 20 years ago, who have always paid via renewal commission, I have tried to get some of these clients to change to the new model because it makes more sense for them and our business but they are reluctant to change. So for those legacy clients will the commission I receive for conducting two reviews per year and remaining in constant contact be stopped? If so what will our client’s expectation be when I have to tell them that the Government has legislated that I cannot look after them unless they pay my new fee? WHo will hold their hand at claim time and when the markets go down again, who will be there when they need it most? Bill Shorten?
I have a large number of clients who are members of employer super funds, the majority of which i have never met, located all over the State. We send them a welcome kit when they first join, contact them as required and send newsletters, even though I know for a fact that most don’t read anything sent. I receive both asset and insurance commissions fromthese plans. We are however, constantly contacted by members for reasons ranging from a simple address change right through to making death or TPD claims. If I compared the commission earned from a client against the time spent doing these things in all but the very simple cases I would be behind - no question. However, as all members contribute but not all members ring in the same year, the pool of income from a fund usually covers the cost of maintaining it and making a profit (am I allowed to say that?). That system works well for me and for thousands of other advisers and i have had no complaints (public outcry I think they refer to it as).
Now, if someone comes along and tells these people that some greedy, faceless adviser in the big smoke is getting paid out of their super for doing ‘nothing’ (in their eyes)and you now have the ability to turn this payment off, I would say that, of those who actually listened, many would opt out - thinking they are doing the right thing. The problem is, nobody usually knows in advance if they are going to have an accident, die, get sacked, get divorced etc and will need our services. Further, I have the costs associated with providing a manned office to ‘be able’ to provide these services, even if they are not needed in a particular year. Will a trade union allow members to opt out of paying their dues in a year when they don’t think they will need the unions help? They would collapse if this were to occur, as they use all members dues to fund the costs of supporting those members who need help (as well as sponsoring football teams, political parties etc, but I digress..). I find it ironic that it is the union based funds behind this push.
While writing this I have had two calls from members needing help with both an insurance claim and a rollover/beneficiary change. About 40 minutes on the phone and follow up work to do for both. In the new world I would first have to check to see if they had opted in or not. If not, do I just hang up on them or tell them i’ll be charging them $150 hour from this point on?
The reality of opting in, is by default,many clients will be opted out,simply because they did not read the information,or did not act in time to stay as a client.
The result will be a administrative nightmare trying to get clients to sign documents to opt back in.
Clients can currently opt out any time and to enable planners to focus on the clients needs, we need to have the time and resources to do our job, without even more distractions,that if continue, will drive Advisers out of the Business,which I suppose is what the Industry funds want anyway.
Industry funds feed unions, which feed Labour G’ments. Both entities view of the world is that people can’t make choices, as such they wish to control people because they think they know all and remove their choice and autonomy. The consultation process is a shroud. Opt in is the way Labour can reduce planner numbers and influence. Remember the other professionals, Accountants. Labour states that the ATO will be doing peoples tax returns. Smack of the same scenario? If it looks like a rat and smells like a rat it usually is. It is all about Big Brother taking away peoples choices and running EVERYTHING. It simply gets back to this, they have to go before they destroy a great country and lifestyle!! I can’t believe the idiots who voted these clowns in.
If you were competing in a market place, how beneficial would it be to you if there was some new legislation whereby customers were driven to you and away from your competitor?
You don’t have to disclose anything, don’t have to deal with all the troubles of real people, you don’t have to know your client, keep up your skills and knowledge, you don’t have to write statements of advice, you’ve got plenty of profit - enough to fund the odd TV campaign to keep up the momentum, government smiles in your direction - you in theirs. Even later, if a customer, totally disabled or profoundly ill, discovers that their fee-free product was not what they thought and after two years their replacement income stops, or worse they thought they had insurance that covered for this sort of thing but it didn’t, its outside your responsibility.
You may well sit quietly, say nothing and reap the bounty. The customers think they are getting a great deal at no cost. Ooops, isn’t that one of the definitions of a scam?
Fiduciary duty if (and its unlikely) genuinely introduced would prevent ownership of licensees and advice firms by product manufacturers (as this is the only real way to totally remove conflicts of interest. If this real fiduciary duty was brought in then Opt in would be redundant but as we are likely to get some watered down meaningless version of fiduciary duty opt in will make a meaningful difference to how buisness is conducted. Having said that I think the negatives in increased coast and compliance outweigh the benefits in a Fee for service world and particularly in relation to risk buisness.
I don’t see the need for opt-in because once fee for service only has been introduced for investment strategies/products in 2012, at the start of the relationship (or continuation for current clients), clients can be given the choice of either paying for a transaction based service package like with industry funds or an ongoing service package. The relevant packages will be priced accordingly by the adviser business and it will be very clear to all what the adviser is responsible for. Clients who choose the transaction based package cannot expect any service in future for free. They cannot expect the adviser to bear any liability other than at the initial stage based on their current circumstances.
Clients who choose an ongoing service package have chosen to pay for this service knowing that they can stop paying the fee (opt out) if they are not happy. So why all the fuss about getting them to sign letters every year or sending them invoices, chasing up for payments etc. This will only increase the cost of doing business - it is expensive enough as it is and clients don’t want to have to pay anymore. Why penalise advisers who are trying to help their clients, with more and more administrative burdens that serve no one. This process still wouldn’t have stopped situations like the Storm Financial saga as clients willingly would have paid their fees as they were getting great returns from their strategy (i.e. until it all collapsed). Will this opt-in reform protect consumers from dodgy advisers? I don’t see how.
Jeremy is right. I have worked as a fee based adviser for more than 20 years. We have always clearly spelt out our fees prior to the client engaging us. They are also aware that we seek to work together with them over the long term - like a partnership. They can always sack us & turn off our fee at any time. How many times do they need to say “yes, we continue to want your advice & guidance”? For clients already paying an ongoing fee there should be no need to ask them to “opt-in” continuously. It will just be an administration cost & hassle.
In respect of fiduciary duty I agree with Jason’s comments. We need to see the fine print. The principle of putting the client first is something our whole profession should do. No problems with that. But the devil is always in the detail. Will it be true fiduciary duty. Can I assume for instance that there will be no changes to the legal liabilities we face ?
I agree with most of the others who have commented before me, so I won’t repeat the same points. Unfortunately the opt-in provisions will drive up the cost of advice and service, so that those clients who opt-in will end up paying more and many clients who either intentionally or unintentionally do not opt-in will end up not receiving the ongoing advice and service that they need. This cannot be good for the country in the long term as more people may end up on social security, or be significantly underinsured.