The release on 1 May of the FPA’s consultation paper on the future of financial planner remuneration has once again placed the issue of adviser remuneration in the spotlight.
riskinfo wants to know whether you agree with the FPA in its push to transition to fee-based advice (refer to current article for further details: FPA Fee for Service Plan – Risk Products Not Included).
There are many issues that stem from the FPA’s consultation paper, such as the fact that life insurance products are not included in these plans ‘at the moment’, the timing of the proposed transition and the nature of the preferred remuneration models post 1 July 2012.
Future riskinfo polls are likely to address a number of these and related issues, but in this poll we are simply asking whether you agree with the FPA that the industry should transition to an adviser remuneration model that separates product from advice.
The FPA’s point of view stems from its stated genuine attempt to engender in the Australian public a greater trust and confidence in financial planning and financial planners.
Other perspectives, including that of the AFA, argue that the adviser should be afforded the flexibility of choosing the remuneration model, including commission, that best reflects the nature of their business and the relationship they have with their client.
But irrespective of your point of view, this is a topic on which every adviser does have a very specific opinion.
We have also opened our Comments facility below and encourage you to add your own measured thoughts to this debate, the outcome of which will have a direct impact on every financial adviser.
Should a government in their wisdom abolish the client’s and the advisers options in the manner of remuneration many people will be unable to afford the cost of advice based on hourly rates (I speak here only on risk products)
I recently advised a client on the hourly rate for work carried out as opposed to commission.
The commission was $899.04 and the hourly rate $1,230 guess which one the client opted for.
The client knew he was paying in a round about way spread over a period of time and was more than happy to use the commission structure.
I wonder if, when the public realise how commission works, what method they would chose?
While I agree with the FPA proposal in principle it will not suit all businesses and may price many consumers out of the market. We generally work on a fee for service basis predicated on an hourly rate but in practice some clients prefer a ‘deferred payment program’ as an initial fee is just not feasible from a cash flow perspective. Moreover when calculating a fee we generally charge less than the hours actually expended on the advice. If the options are removed hourly fees will need to be charged more accurately resulting in higher overall costs. The end game in this scenario is one where we charge like Solicitors or Accountants in 6 minute modules. This can provide incentives to over service and rack up higher chargable hours in the pursuit of income. This is not a good result for the consumer.
I think we need to take into consideration why the FPA are saying this? It is for Investments and Super only so there is no need to talk about Risk yet.
The FPA are proposing this to help improve the consumers perception of our industry. People go to a Lawyer, Accountant or Doctor knowing that they will have to pay a fee. Why do you think the consumer doesn’t put Financial Planners into the same category as these professions? Because as an industry we can’t even put a value on our own services and advice.
Another thing that I think we are forgetting is that we can still deduct the fees out of the Investment or Super/Pension (the same way commission is paid). The only difference is a Fee is agreed upon by the adviser and clients as opposed to a commission that is agreed upon by the advisers and financial institution.
I think the only reason most of the industry is pushing back on this issue is because they are afriad they can’t put a value on their own services or advice or maybe they can’t articulate the value that they add.
Who’s in a better position to set the remuneration/value for advisers? The institutions or the advisers themselves? I know who’s opinion I value more – my own (as an adviser).
I know I’m not in the industry “as such” anymore, and thank goodness for that!
It hasn’t changed ! If it isn’t the government – it’s the dealer.
And if it’s not the dealer – it’s Choice magazine on behalf of consumer protection!
And if it’s not Choice – it certainly won’t be ASIC – they’re always too late to the party!
But as usual, the FPA are sticking their bib in where they no legal right to do so.
They do not employ the advisers, and should be challenged.
If the dealers offer commission, then they should also be allowed to accept it as a means of payment.
It’s like smoking. It is legal and people die from using tobacco. But the government allows it – legally.
Despite what the FPA thinks, it is not a quasi government and has not right to inflict it’s own directives on people it does not employ, but is supposed to universally represent. Or is this the FPA acting on the directives of the dealer groups and ASIC and government and Choice!!!!!!!!!!
I remain passionate about the rights of adviser as individuals. But they need to wake up and defend themselves.
They need to educate clients about why they choose commissions or fees. Not be dictated by tin pot dictatorships!
I support the AFA view in the respect that I think Advisers and Clients should have the flexibility to agree on the way remuneration should be paid. Some clients prefer to pay in the form of commissions and others prefer to pay fees or a combination of both.
Thanks for the opportunity Pete to make comment. My plea – which has also gone to the FPA in writing yesterday – is for everyone not to just accept an intra-industry, verbal advice that life risk commissions are not included in this discussion paper. This clarification MUST BE PLACED INSIDE A RE-LAUNCHED version of the paper. The paper is being widely distributed; it needs to specifically clarify, within the document, that life risk is not meant to be included. Currently THERE IS NOTHING in the whole 17 pages which would lead a person reading it to know that life risk commissions are not part of the proposals. We cannot as an industry afford to give anyone a misleading impression of the breadth of this proposal. Otherwise the ‘external’ stakeholders, who have been hearing for a long time now from the FPA that life risk is an integral part of financial planning, will make a logical assumption that this paper encompasses both sides of the advice equation – wealth accumulation and wealth protection. And in six months’ time when the ACA says “What a great idea to take away commissions for life insurance!” (which we know they would LOVE to do) it’s not good enough to say “Oh – didn’t you know? We never intended for life insurance to be included.”
A throwaway verbal response to ‘questions from the floor’ is not good enough, FPA.
Sue and Peter
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