To what extent will the introduction of client opt-in measures have an impact on the cost of advice to your clients?
- Significantly higher cost to client (47%)
- Higher cost to client (43%)
- Won't have much impact (5%)
- Lower cost to client (3%)
- Significantly lower cost to client (2%)
The Industry Super Network contends client opt-in measures will reduce advice fees for consumers. Do you agree?
Our latest poll question asks:
To what extent will the introduction of client opt-in measures have an impact on the cost of advice to your clients?
The Industry Super Network argues that because a Rice Warner report it commissioned revealed that ‘genuine’ fee for service is a lower cost to the consumer, based on personal exertion (ie: an upfront fee calculated on an hourly or set rate), compared with ongoing asset-based fees, this means that opt-in will lead to cheaper advice costs.
But is this argument correct?
The Rice Warner Report (click here to read a copy) is a study on upfront versus ongoing fees in scenarios for super fund members. The report found that, in all scenarios, the cost to the client for advice was cheaper when the upfront model was used. However, this does not automatically lead to the assertion that opt-in will produce lower advice fees. It is more so an argument that banning investment and super commissions will have this effect.
The very positive aspect of client opt-in is that, if implemented, it will minimise the chances of a client paying fees for advice services they do not receive. But this is very different from arguing that the opt-in process itself will reduce client fees.
There appear to be two considerations:
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The average cost per client to the advice practice of administering opt-in and the extent to which that cost may have to be passed on to the client
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Whether opt-in measures of themselves will reduce the cost of advice to the consumer
Our poll is asking you to consider point number two. Are there considerations within a client opt-in environment (other than a potential pricing increase due to additional administration costs) that would either increase or decrease the cost of advice that your clients will pay?
For example, would you change the way you structure your remuneration model, potentially reducing costs for your clients, as a result of the requirement to obtain a signature every two years to be able to continue to provide advice services, and charge a fee for doing so?
This is your opportunity to have your say about the potential impact of the cost of opt-in to your current and prospective clients…
Add your comment now
19 Comments
Should FOFA and opt in get up we will triple our upfront fees for client’s who don’t choose an opt in service package!
If Rice Warner want to be taken seriously they also need to survey Planners how they plan to charge.
I also understand if you need to see a Industry super fund planner you will need to wait 11 weeks?
Another slanted report based on manipulating the premise to get the result struggling Industry funds wish to publicise.I hope opt in for all their clients would show them the light.
Who will be checking to see if advice offered via industry funds won’t be subsidised by the funds themselves? This includes salaried staff, accomodation, compliance costs etc etc. Let them prove that they have a financial model showing how a completely independant firm, earning no residual income from any source and receiving no assistance from ‘external’ sources, can successfully run a business by purely charging an hourly rate to members of industry funds who are referred to them. I will bet my house on the fact that these advice firms will be subsidised in one form or another by the funds themselves - albeit by stealth. This means that part of a members fees will be used to provide advice for other members - the exact system they are trying to destroy and claim is flawed and corrupt!
For some reason our Industry Super Funds seem to think that financial advice is only about super, if I to thought that my role was only about super I to could lower my fees. I complete a full Financial Questionarre, I then deal with the complete financial situation of my clients, have they enough money to retire on in the future? & if not stategies to assist them to acheive this outcome, what happens in the short term? thus a full risk anaylsis & recommendation of risk insurance, if they have retired I complete Centrelink papers & assist with a part pension application & walk down to the local Centrelink office with them for our interview, do they require funeral bonds?, would they like to assist grandchildrens education & invest on their behalf? Do the industry funds know the childrens names & occupations? do they attend the funerals of their clients like I do? are they there & is their call centre in Australia to talk to these clients when they need? The entire FOFA is so self centred around industry funds & superannuation, when is our MP Bill Shorten going to relise that we play a very important role in our community for the long term future of our clients & their families & we are not all the bad guys that we are made out to be agin by this one part of the industry. And after all this name calling we are now seeing the industry funds calling on our services to roll out advice to their clientele as they do not have the expertise & resources within their own ranks.I’m glad Rob Oakeshott is now starting to see the light.
The sad part about this whole change for many clients is that the people who need our service the most will now be unable to afford it.
The ones who do seek actual financial planning advice will pay more as the compliance demands legislated on our business take up 70-80% of our resources. The ones who can’t afford our advice will be left to the mercy of the industry funds to rip them off by placing clients in generic products with absolutely no advice, service, or care for their clients financial situation or well being. I think the politicians have been hoodwinked into believing that an industry fund is actually a legitimate part of the financial advice industry, where in fact they are simply a no name generic style product run by unions and the labor government.
The amount of actual thought that goes into the entire strategy of industry fund sector would probably take one ‘average’ research analyst one single 8hr day. What gets me is that they have actually conned the nation into paying them for the fluff that they provide with there ridiculous Ad campaigns.
Thanks for your help here FPA. Your organisation is a joke.
More snake oil rhetoric from the ISN. They will not be satisfied until they corner the whole superannuation market. They prattle on about transparency, pity they don’t practice what they preach
There is a thing called opportunity cost. Of course a client will pay less fees over time if he only pays an upfront fee and never again. The problem is that as there is no advice over time, it is likely that the portfolio will be inappropriate at some stage of the inestment cycle. Either the value of the ivestment will suffer in adverse conditions, or appropriate tax straegies may not be employed to save money for the client. It is not about the fee they pay, but the overall long term result for their investment portfolio. Would you prefer paying less fees and ending up with less investments, or appropriate regular fees and end up with a greater investment balance?
As an industry veteran of over 25 years, the current model of remuneration has worked well for myself and I am sure all other professional advisers. Should the Opt In eventuate, unfortunately redundancies will eventuate at our office, clients will be re directed to call centres for all the day to day admin duties that we do now, which are managing clients affairs that occur daily and the up front and hourly rates will significantly increase to cover our other business expenses.
Despite opt-in, advisers will still always be liable for advisory services already rendered. The resultant ongoing PI premiums in the years to come will need to be estimated and included in the upfront fee. Plus the estimated additional cost for chasing up the recalcitrant opt-in client paperwork to ensure continued advice fees.
When the price differential between “wholesale” and “retail” investment management fees which amount to about 150% of the annual on-going advice fee paid to advisers is stopped from being paid as “volume rebates” by Investment Managers to “all” including the “Industry” and “pooled superannuation” Trustees, Responsible Entitities and Administrators. There is no place for “retail” investment managed fees in a “pooled” superannuation environment.
If FoFA becomes law, we can comply right now and we will have no issues with the 2 year opt-In rule.
We do oppose the removal of commissions from super as that introduces another conflict of interest. The government would be better served if they changed the commission to level or flat rate as that will remove the existing conflict of interest.
The fools that impose these restrictive measures are not the ones subjet to them!
I just dont understand the need for opt-in at all when one considers the fact that, with no commissions availiable [agreed on wealth product] the only way a fee can be charged is via a signed client agreement which can be opted out of at any time!! The cave dwellers have yet to catch up with where the real world has moved to.
Further, as is always the case with such consumer sympathy proposals, once legislated, it is the very people who are ‘protected… or planned to be protected ” from the realities of their commercial world, who ALWAYS are the biggest losers. The pity of it is that this proposed legislation will just increase the pool of dependancy over time. But do they understand or really care or is that the plan? The big agenda would say no to care. It is all about control and we are the pawns of their game!!
Some great comments above. It’s good to see my fellow planners have finally started to wake up to the truth that these measures are being driven by political agenda’s of the unions and Bill Shorten and have nothing to do with consumer protection or cost reduction.
I am yet to see a fair arguement which holds up against real life counter arguements, even suggest how these reforms will actually benefit clients.
I can see how they benefit the industry funds to be more competitive against the established planning fraternity and I can also see how this will help Bill Shorten garner support from the Labour Caucus to help him eventually advance his position within the party.
Well the only sure outcome of these measures is to ensure the poorer clients are priced out of proper financial advice. But I guess Bill will be happy with that, as they are more likley to stay Labor supports.
At least FSR had merrit for the clients (Although some improvement was needed). FoFA is just blantant polictal screw you all…
Are our clients really so helpless that if they are unhappy with our advice or service they can’t simply call the super fund or insurance company and cancel the servicing adviser?
They are already protected by onerous legislation.
Another example of government nanny state nonsense.
Any one with commonsense will know that the cost of administering opt in will increase the costs to clients. If opt-in comes in, I will carefully choose which clients I want to provide ongoing service (only the ones who can afford to pay and therefore need less chasing up). The rest (small clients) will only have one option - a transaction based service with costs paid upfront. The result will be that well off people will get ongoing advice to make them more well off and people who are poor will not have the option they once had to receive ongoing advice. And the only way their costs will reduce is if they do not approach us for any advice (which they may not do as they do not want to pay for it, which means that the objective of FOFA is not achieved for these people). Therefore there will be less choice for poorer Australian families and less opportunity to avail good advice.
Also I will need less staff to run my business (more unemployment). Unfortunate but we all will have to do what we can for the business to survive. It should be compulsory for politicians to do a business course and work in a small business before they try and make rules for the rest of us.
FOFA was brought in to stop another “storm” yet nothing in it will do that. The changes in FOFA wuill benefit Industry funds, the same funds which Labor pimped in $1 Billion into in 2008, the same funds Bill Shorten worked for.It is time that Bill Shorten remembered that his primary obligation as a Minister is to act in the best interests of all Australians with superannuation - not in the best interests of his mates in union superannuation funds.
I’d like to make a couple of ironic observations re all these proposals.
The first is that we should should charge fees like other ‘professionals’ - like lawyers - based on work actually done. I see many legal firms, including the one our beloved PM used to work for, charge nothing upfront (or at least claim not to) and then take a massive cut (commission) of the outcome. Will this practice be outlawed also?
The second is the constant notion that we receive ongoing income for doing nothing. That’s sounds a lot like a parliamentry pension to me. Work for a few years on a very lucritive package, get voted out and continue to receive a genourouse income for the rest of your life courtesy of the mug taxpayer. I don’t see any moral objections from them about this practice.
One rule for one, different rules for another.
Its not only the Union Funds that are the issue. Those idiots from CHOICE continue to run an anti-adviser stance every time that they get up to speak on this industry. But they are the biggest hypocrites when it comes to Opt-In.
The following was taken from the subscription section of the CHOICE website:
CHOICE Plus
To keep your membership going we’ll debit your credit, charge or debit card automatically every 3 months until you tell us to stop.
Why is it OK for CHOICE to run their business on an OPT-OUT basis but then campaign that financial planning should have OPT-IN ? One rule for all. If we need to opt-in, so should they.
The same goes for Union dues. Why is it that once you sign up they just keep taking their dues from your wages each week. Why arent they required to have their members opt-in each year? Why is it still ‘no union membership, no work’ in many industries? Dont see this excuse for a Govt doing that to their union mates.