The Financial Planning Association of Australia (FPA) has announced its intention for its members to transition to fee-based adviser remuneration by 1 July 2012, but has confirmed that it’s current proposal does not include life insurance products.
In releasing its consultation paper on Financial Planner Remuneration and calling for submissions from interested parties, the FPA has set the agenda for further debate on an issue that polarises opinion.
In a press briefing on Friday 1 May to announce details of its transition plan to fee-based remuneration for financial planning advice, FPA CEO, Jo-Anne Bloch, suggested that the days of commission-based advice are over, commenting that “Our members are sick and tired of being tarred with the ‘product flogger’ tag.”
But in discussing the Associations’ preferred future charging models (time-based, service-based and asset-based), Ms Bloch confirmed that the FPA was not applying these models to life insurance products at this stage:
“Life insurance products are quite inflexible at the moment and they have in-built commission structures,” said Ms Bloch, who added that the FPA would like to move forward overall in an effort to focus on advice, and the client, and get that right, electing to address life insurance at a later stage. “We will convene a working group of financial planners and product providers, when appropriate,” advised Ms Bloch.
According to the FPA, the underlying motivation in its push to fee-based remuneration for financial planning advice involves a genuine effort to create greater trust and confidence within the Australian public in the financial planning process, which includes the separation of the cost of advice from the products recommended.
Ms Bloch said that any future adviser remuneration model must be practical and must be implementable; these elements helping to frame the structure of the Associations’ proposed Six Principles of Remuneration and the models that would best deliver those outcomes.
The FPA’s proposed Six Principles of Remuneration are:
- Consumers must be able to understand the fees they are paying
- Consumers must be able to compare the fees they are paying
- Consumers must be presented with a fee structure that is true to label, which means that the Licensee and financial planner must disclose their chosen charging model using consistent and agreed terminology which accurately reflects the model
- Consumers must be presented with fees that distinguish between advice and product
- Consumers must agree the fee with their financial planner and request that the fee is switched off if no ongoing advice is being provided
- Consumers should pay for financial planning services, not product providers
According to the FPA, the following benefits of its new remuneration policy would flow for consumers and FPA members:
Benefits to Consumers
- The ability to understand the costs of advice, and the value that the advice delivers
- Greater transparency in fee disclosure
- Clarity and ability to compare pricing models and actual costs
- True to label charging models
- Ability to pay only for what you want and stop payments for services you don’t want or may wish to stop
- Advice that is free from the influence of product manufacturers
- Positive perceptions and acceptance of financial planning as a profession
Benefits to FPA Members
- Ability to offer advice that is free from product influence
- Ability to negotiate the fee with the client
- Improved consumer trust
- Improved professional identity and demonstrating the professional difference of FPA membership
- Best practice models are outlined using consistent and agreed terminology
- Ability to set remuneration directly aligned with advice, services
The Association is calling for feedback to its consultation paper from its members and the community by Friday 29 May 2009. You are also welcome to have your voice heard by adding your opinion in our Comments facility below.
The FPA should concentrate on helping their members rather than engaging in a commission vs fees debate.
Perhaps look at ways to address the astonishing chronic underinsurance problem in Australia?
That would be a better headline rather than painting Advisers as “greedy money grabbers” who offer no real value to clients.
The FPA would do well to remember that it does NOT represent all Advisers.
It is all good and well to offer a fee-only service when dealing with wealthy clients, but for mainstream Australia this is not suitable. If an adviser wishes to charge upfront for services to most Australians the up-front cost will only drive them back to getting advice from mates around the barbecue. Is that really moving the national savings effort forward? I know this because I have seen it happen many times. To convince a new client of the value of paying $2500 upfront for advice which he perceives he can get for no upfront charge from many other sources really is like trying to push the proverbial up the hill.
Surely the manner of fee collection should suit the situation as long as it is fully disclosed and understood by the client, as has been the case now for five years.
I wish all those who adopt a full fee-only service well as they find themselves in a price war with all the other segments in the market who claim to offer the same level of advice.
The answer is to provide great service, along with transparency and clients have no issue. If you think they are too stupid to realise you need to get paid somehow, then you need to give your clients a little more credit.
I agree with the position of the FPA.It is time this profession, if it wants to become one, enters into an agreement with it’s customer/client and provides advice based on the clients needs not on a product solution that pays a commission.The FPA is to be congratulated on finally standing up for the professional advisers and creating a credible association.
Well done to FPA, talk about fiddling while Rome burns! As Advisers we are already required to outline the costs of advice to clients. Costs which they are able to understand and compare with others before taking on our advice.
As far as remuneration models, both advisers and clients should be able to choose the one that is right for their financial circumstances. In the 10+ years that I have been in the industry, I have yet to see a client who complains about how they are charged and how I am paid regardless of whether it be by fees or commissions.
The FPA have again let down their members with wasting their time and membership fees on this non-event when they should be trumpeting the reason we are in business – to ensure that Australians are properly insured and financially well prepared for retirement.
I agree with Leigh’s comments. Alot of clients don’t want to have to write a cheque and would rather the adviser to be paid with an ongoing commission. Don’t exclude the smaller clients who cannot afford upfront fees.
Now the true colors of the so called advisers advocate appear. They are being lead by the banks & fund managers.
If this is the case, then maybe the government should look at abolishing the 15% “commission” it gets out of superannuation – this would include SG contributions as well as fund earnings. Maybe Wayne Swan should consider this as a “temporary” measure to help super funds recover from GFC.
I don’t think the FPA is doing this to negatively impact us or the industry. I feel they are doing it to improve the consumer’s opinion of our industry. It will show the public that we are not motivated by commissions (which they think influences our product choices) and it will also help them value our advice.
Fees can still be deducted from Super and Investments, the exact same way as commissions are deducted – the big difference is that the client agrees to the fee we get paid, not be told what we get paid by the institutions.
Look at it from a positive point of view at least you get to nominate your own pay structure and not get dictated to by the institutions.
FPA and Life companies have been trumpeting the need to address the underinsurance propblems in Australia.
Applying the fee based remuneration to risk products will only increase the underinsurance problem.
I have been in the life insurance sales business for 43 years and I can vouch that people will not pay for life insurance advice. Consider recommedning to a policyholder to review their existing personal insurance – “by the way the fee for me to do this will be $3,000”. Do you know how much life insurance I will sell – 0.
People have always been sold life insurance. The sale of life insurance is made easier because they perceive that it costs them nothing.
I agreee that investment advice needs a fee structure. People will pay fees because they perceive the value as they can see their investments growing. This is their real money. They can’t see the value in life insurance unless there is a claim. Some refer to it as “funny” money. Maybe I will make a profit and maybe I will lose the lot.
Underinsurance will dramatically increase if commission is removed from the remuneration paid to life insurance advisers who do not have any involvement in investment planning.
i am self employed and have been fo over 30 years how i am remunerated sould be my choice and not the fpa. as long as it is disclosed to the client why should the fpa be involved they should be tackling issues such as the massive cost to the industry including clients imposed by the current soa requirements that the clients dont want and is basically useless
Fee for service spells the end of most financial planners. It reduces our business value by 2/3. Most of the general public will not be able to access financial advice due to their own barrier of not wishing to part with money from their wallets.
I agree with this proposal. It makes us more reputable in the market place!
What you see is what you get!!!
The large proportion of Australians who need financial advice simply wouuld not be able to afford it. They take the advice because it is not directly out of their pocket. It suits 98% of my clients for me to be paid by ‘trail’. They know exactly what that is and are happy with the disclosure. The FPA should be taking notice of this large section of the public and devising procedures to help them, and stop pandering to the big financial institutions and toffee-nosed advisers who wouldn’t deal with so called ‘low value’ clients.
I present all options to my clients up front, an hourly rate, fee for service, Soa fee, commision & trail & allow the clients to choose. 95% choose hourly rate, I then ask how do you wish to pay & 100% of time they request the fee to be deducted from lump sum investment. They have chosen & guess what they have chosen commission. Why do the FPA need to tell the consumer that they must write out a chq. 95% can’t do this so do the FPA want minimal consumers seeking advice.
If advisers are taking unrealistic up fronts then stop it. Most advisers dont have a problem with the current fee arrangements the fee disclosed the client agrees if not diclosed then take away their licence. The FPA should be telling Sherry, Weaver & Co to get their own back yard in order before trying to belt us around the head. 15% commission taken by the Government and no advice who is lashing who. The FPA should be asking Sherry and Weaver how much Industry fund members lost due to them not receiving advice and how much more they are going to miss out on because they dont have the right strategy in place to maximise the next up turn. How much members money has been thrown away in trying to denegrate an industry. Its about time the FPA stood up for its members over this issue.
I am a 100% risk adviser, and trying very hard to provide sound advice to people to protect their income, assets and family in the event of illness, injury or death. We have a huge under-insurance problem here in Australia and risk policies are sold, not bought to people when they realise the risks they are faced with after consultation with an adviser. Also there are so many variables and options available with the products in the market, they need an adviser to explain the differences in policies. The premiums with the various insurers have built-in commissions, so it is better for a client to go via an adviser for advice, implementation, ongoing service, reviews and claims management rather than going direct to an insurer and paying the same premium and not knowing the products, definitions, limitations, wordings etc. Not sure how risk advisers would go if clients also had to pay us an additional fee above the premium they will also be paying to the insurer. Not all of us “product flog”, and are based on “transactional” business.
Comments are closed.