The Association of Financial Advisers (AFA) has released an initial response to the FPA’s consultation paper on Financial Planner Remuneration.
AFA CEO, Richard Klipin, suggests that removing adviser remuneration by commissions, as recommended by the FPA, takes away a consumer’s fundamental right to choose – a right which has been ‘enshrined’ in Financial Services Reform legislation since 2004.
“The legislation as it currently stands protects consumer choice of adviser, advice model, products and payment options,” said Mr Klipin, who added, “The industry has spent many years building transparency into the system and financial advisers have been legally required to disclose how and how much they are paid, in dollar terms, for almost five years.”
Another concern for the AFA is that removing commissions may make comprehensive financial advice unaffordable for consumers at the very time they need it most, and that the ‘fees versus commissions’ debate is fixated on price when it should be focused on value.
“It is very easy to be distracted by insular debates,” Mr Klipin says. “But in what is proving to be the most difficult market in living history, it is vital the industry demonstrates leadership and takes a collaborative approach to educating consumers about the value of comprehensive advice.”
A further question that arises from this debate is how the FPA and AFA define themselves – as ‘professional’ and/or as ‘membership’ associations, and whether there is a fundamental difference between the two.
According to Mr Klipin, professional associations are by very definition member associations and must therefore be fully focused on representing the best interests of members.
From a member point of view these interests include:
- Defining the role of advisers as those who build, manage and protect the wealth of their clients
- Articulating the collective view of the membership to Government, the regulator, the media and the marketplace
- Increasing educational standards and professional capability for their members via a robust formal and informal education program
- Helping members build better and more robust business
- Developing newer entrants to the advice profession
- Engaging effectively with all industry stakeholders
AFA National President, Jim Taggart, says members do not want nor expect their professional body to tell them how to run their businesses:
“At the moment, our advisers are free to choose the business model that best suits them and best suits their clients,” said Mr Taggart. “They choose how they run their businesses and which clients they service. They also offer their clients a choice in how to pay for those services. It’s clear that clients want that choice which means choice is the way of the future.”
Meanwhile, MLC has registered its support for the FPA’s proposal to transition to fee-based adviser remuneration, stating it was ‘…a significant step forward for the financial advice industry.’
General Manager of MLC Advice Solutions, Greg Miller said, “The community’s concerns around financial planner remuneration continue to be a barrier to financial advice being recognised as a valuable professional service.”
Mr Miller continued, “The FPA’s consultation paper proposes clear and sensible principles for planner remuneration which will go a long way in moving the industry forward.”
“Separating the cost of financial advice from the cost of a product is critical in managing potential conflicts of interest and building trust and transparency in the financial advice industry,” said Mr Miller.
“Being able to stop paying the advice fee is also a critical principle – in no other industry would we question the right for a customer to stop paying for services if they no longer want them.”
MLC’s advice businesses include: Godfrey Pembroke, Apogee Financial Planning, Garvan Financial Planning, MLC Financial Planning and NAB Financial Planning.
Your measured feedback in our Comments section below will be welcome…
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.
It is rather a contradiction for companies such as MLC to imply that removing adviser fees from product fees will remove conflict of interest.
These companies are full of conflicting interests (which affects advice given to clients) when they rebate portions of commission due to size and also when they own financial practices themselves. The fee vs commission debate hardly removes these conflicts!
Thank you to the AFA for listening to its members and representing the Advisers. The AFA represents the people (advisers) who look after the number one concern, the clients and their financial future.
Until the FPA is for practicitioners only & not Dealers,Banks & Fund Managers nothing will change. The FPA is being wooed by the big banks & fund manager to push their barrows.
Just remember who the banks own in the way of Fund Managers & Dealerships, it is almost going back to the bad old days of totally tied distribution channels, we all should be concerned with the FPA direction.
I cannot understand why the FPA as the peak body supposably representing the financial planning industry has become so out of touch with the industry. They are now showing their true self and attempting to align themselves with the industry funds and others who would like the financial planning industry disappear.
It is all very well for the large financial planning professionals who will only deal with high net worth clients to work on a fee for service basis only and not accept a client unless they have $250K or more investable funds. However in the real world, this is not the case.
Being able to negotiate to be paid via commission and/or asset based fees removes the problem of not getting paid for the time taken to provide advice because the client cannot afford the upfront cost or refuses to pay it. As it is, we spend to much time providing advice and recommending strategies for no pay!
Many Financial Planning Businesses are structured in such a way as their overheads are being met by trail or on-going commissions. The removal of the trail commissions would jeopardise both the jobs of support staff and the ability to maintain current business overheads and the uptake of new entrants into the profession. Switching these off will drastically affect the future of the industry and will only allow access to the services by the wealthy few.
Is this your desired outcome?
It appears to me to be the most likely outcome for many practices outside of the major banks. The banks business models do not foster a continuity of service from the same Adviser and the relationship that Adviser and client have, will not be met by the banking giants models. Getting more than 1 adviser dealing with the client may confuse the client and also lead to a less rewarding experience.
Your models are suitable to large corporations only and not on target for small financial planning practices or smaller investor clients.
FPA members are financial planners and as such their issues should be considered and be a priority for the FPA, this is not evident in the FPA’s actions.
By and large most financial planning practices have the client’s best interests at heart and the issue of consumer protection is largely dealt with in legislation and bodies that represent their interests.
The FPA should make sure that it’s memberships interets are maintained and not try and dictate to it’s members how they should approach their remuneration. Member’s Professional Conduct is relevant to the FPA but weighing in on individual business models for renumeration should be outside the scope of the FPA.
The FPA is heading down a path where the Real Estate Institute has gone before with the result was losing a substantial portion of it’s membership as it was seen as no longer relevant to the interests of it’s members.
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