There has been swift and varied reaction from the financial services sector following the release of the Federal Government’s Future of Financial Advice reform package earlier this week, which included the intention to ban commissions from 1 July 2012 (see Government Bans Commissions…).
We have summarised a range of responses from product manufacturers, associations and individual advisers:
Product Manufacturers
The two most prominent advocates of the move to fee for service have been MLC and AMP, and it has been these two organisation who have been first to release their response:
MLC
A spokesperson representing MLC & NAB Wealth has commented:
“We welcome Minister Bowen’s proposed reform agenda which we believe will help drive greater trust in the financial advice profession. It addresses a number of the core issues that have been holding the reputation of the industry back including commissions and volume based payments…”
AMP
AMP Financial Services Managing Director, Craig Meller, said AMP is supportive of the Government’s steps to increase consumer confidence in the financial services industry:
“As an industry we need to ensure Australians have confidence in the quality of the advice they receive and that it is delivered as efficiently and cost effectively as possible,”said Mr Meller.
Associations
Associations representing financial institutions have issued statements strongly supporting the Future of Financial Advice reforms, while associations representing financial advisers have offered qualified support for some of the reform initiatives:
IFSA
IFSA CEO, John Brogden, commented, “… the Federal Government’s announcement on reforms to financial advice is a win for consumers and will build trust between financial advisers and the community.”
“Our objective is to create a financial services industry where advice is transparent, of the highest quality and available to all Australians. This package, in addition to industry initiatives to enhance customer control and ban commissions on superannuation, will substantially achieve these outcomes,”said Mr Brogden.
ASFA
The Association of Superannuation Funds of Australia believes Superannuation fund members will get better access to advice about their retirement as a result of the reform measures announced by the Federal Government.
ASFA CEO, Pauline Vamos: “The Government’s response recognises the importance of delivering single/limited issue, cost-effective objective advisory services particularly in the superannuation and retirement area.”
FPA
The FPA offered qualified support, welcoming ‘… a number of reforms’.
Acting FPA CEO, Deen Sanders, said these reforms would play an instrumental role in improving transparency and investor protection in the financial planning industry, adding these reforms represent the most significant changes to financial planning since the Financial Services Reform Act in 2003:
there will be positive and negative impacts on the advice industry…
“Given the scale of the reform package, there will be positive and negative impacts on the advice industry, so implementation will take time and require careful consideration,” said Mr Sanders.
AFA
The AFA also welcomed the release of the Government’s reform measures, saying the broad thrust of the Government’s response is sensible, but adding it has major concerns in a number of key areas, including adviser and consumer choice over remuneration:
The AFA has argued consistently that consumers require choice:
- Choice of adviser (aligned, tied, independent, salaried)
- Choice of advice (holistic or specific)
- Choice in the price they pay (the way and the value they derive)
- Choice of pricing model (fees/commissions/hourly rates)
AFA President, Jim Taggart, said that in banning commissions the Government not only denies consumers the fundamental right to choose how they pay for advice, but goes one step further and dictates how they remunerate their advisers:
“It is a major concern that in a free market, the Government should consider it necessary to legislate how any professional in any industry should be remunerated,” he said. “What we are seeing is disempowerment of the individual,”said Mr Taggart.
Adviser Comments
Taken from comments made by advisers to our initial story on the Future of Financial Advice Reforms, with or thanks:
We are merely following the lead of some other countries, and seeing the demise of the finance industry
The product groups … will be rubbing their hands with glee at this announcement. Less competition, less independence of advice and fiduciary responsibilities moved onto the shoulders of their employee ‘advisers’.
If all fees and charges are disclosed as required what is the problem. … Most clients can’t afford fee for service payments out of their hip pocket…It is the non discloser that is the problem not the name of the payment.
Without ongoing trail commissions, we will have no financial capacity to carry unprofitable clients so they will have to be culled. As is typically the case with misplaced government policy the consumer will be worse off as they will less choice, higher direct fees and advice will be out of reach for most.
I can just see the annual “opt-in” fee being the catalyst that will cause advisers to form relationships only with the wealthier section of community.
…when someone walks into a [bank] branch or an industry fund office under the new regime and requests advice on where their money should be invested from a salaried employee, is there a chance in hell it will go anywhere other than into their own products? How is this creating a more level playing field…
The government decisions about banning commissions I still think are wrong as they are directing how we are to be paid and not giving the public a more affordable way for them to pay for advice.
The banning of commissions has been on the Industry Super Funds agenda for some time and now that they can control government policy in cahoots with the Unions they will be rubbing there grubby little hands together like Gollum in his quest to obtain his precious gold ring. When are they going to advise their members of the commission income generated by the life insurance premiums they charge each and every person without question or investigation into its suitability. Answer – NEVER.
The legal imposition of fiduciary duty will have as significant and impact over the long term as the banning of commissions. AND I do feel sorry for those advisors running on the back of arbitrage in buying “old fees” and financing them at 8% and being paid 20% – they might have to downgrade their lifestyle arrangements.
Can I pay my taxes on a flat rate? Can I opt in every year depending on how I feel about the value my taxes are delivering? Be difficult to run a country that way.
Expansion of intra fund advice plays into Industry Funds and large institutions hands. Combine this with a more aggressive ASIC then consumers will have far less choice. Smells like a grab for control over the huge super/managed funds assets in Australia.
Little to do with consumer protection – that’s just the smoke screen
As you can see above every comment from advisers is negative but absolutely true. These are the guys at the coalface.
Once again the spokespeople & lobbyists for the bank & industry super has won. As we have seen with the supermarket chains we will now see repeated with the Big banks and the individual products that they now own 95% of anyway. (Fact: We pay 4 x what we should for meat and fruit & veg. Prepare to pay more for financial advice, or the bank will sell you a ‘family box’ for $19.95).
The advisers are dead right. Every bank will now simply hand their clients through to the product provider that they own (i.e. NAB owns MLC/Aviva/vying for AXA/AMP/Suncorp if they can get their grubby hands it. CBA owns Colonial. ANZ uses ING. Westpac now owns St George, BT Funds). Independant bias free advice, what an absolute joke.
All I can say is to the consumers, prepare to pay even more of your ‘hard-earned’ to the big banks, and prepare to be ripped off once again.
By the way if you don’t have enough money don’t expect the banks to even talk to you. They will probably send you a nice glossy brochure in the mail.
As with the supermarkets this move will cost plenty of jobs. For every person a corporate like CBA/NAB/Woolies puts on, they replace 3 jobs from small business.
Why you ask?? Simple, corporations are designed for shareholders to profit, not top create jobs.
So why does the Govt support this?? Again simple because it’s easier for them to administer and control a small amount of corporates rather than many small business. What they don’t understand is that the corporate is actually controlling them as they have the time & money to employ FT lobbyists(They like to call ‘Executive Management’).
Eventually the rich will get richer and the poorer, poorer The mum and dad businesses and the lower income earners who need the best advice will in most cases be unable to pay for it.How long now before this government has access to OUR Super? What a “winfall” that would be to support its mindless ongoing “purge”on a wonderful and helpful industry already drowning in regulation because of a handful of “Rogues”?
For those of us that always have had our client’s bests interests at heart, what does it matter how we get paid as long as our clients fully understand the fees they are being charged. The Govt has no right to dictate how we are paid ! How does calling it a fee for service, a commission, a salary or whatever else you want to call it, make a difference to anything?
If you want to ban advisers selling products because they can earn 10% on certain products, then ban it at the PDS level. ASIC can put a cap on “entry fee/commissions at say 4% on all products and at 0.6% on assets. Would that not stop the discrimination because all products would then pay the same maximum commissions?
I feel sorry for the many australians that will no longer be able to enjoy/afford the services or support of a genuine and ethical financial planner.
Who’s next … the real estate agent who earns 3% for selling a $500K property, Harvey Norman earning 15% for selling me goods finance, the car salesman making 10%.
How about Coles, Woolies, the local greengrocer or the tradesman who can make up to 100% profit on goods/services they provide!
Whose ripping who off?
Does anyone know if commission payments to an adviser will continue after 1 July 2012 if the client was already in a commission based product prior to 30 June 2012?
the problem is the wording means it also interferes with the agreements between planners and practice principals. They have banned: “Any form of payment relating to volume or sales targets (including employee sales
and volume targets)” That does not just affect how we charge a client, but it affects our employee agreements with practice principals. If i am on a % of fees/comissions generated, and that % increases as volume increases, then that is technically a breech as i read it. Someoen needs to go back and make these people actually come out with something that makes sense. Typical Carp before the budget is to come out.
I am a life risk writer and whilst not affected YET by the current legislation,
I wish to say that after 38 years in this industry which I love, how dare the Government, Industry Super Fund Managers and Top of the Town Financal Advisers dictate what this industry should do. Commissions have been paid BY THE INSURERS, since the advent of insurance and we should be paid BY THE INSURERS for uterlising their products. Any risk adviser has the choice of reducing commission through Insurer’s quotation systems, so all the fee writers can use this system instead of making us follow their method. I cannot work out a formula to charge fees with risk insurance and cannot understand how the government or finanacial advisers can! The commission I receive, covers setting up the cover and ongoing servive including Claim work with no extra fee/cost to client. Like the banks, the people will tell us with their feet.
Of course the product groups – MLC, AMP etc -support these reforms because it reduces competition and helps them consolidate control of the advice industry. They don’t want any pesky advisers around who give unbiased advice.
If not openly then secretly the product groups and IFSA will next push to ban commissions on risk insurance, and probably push to end commissions on mortgages, for the same reason.
Meanwhile the FPA fails to support individual advisers because it is the product groups who pay the piper, perhaps the FPA should change its name to the Financial Product Association.
Good luck staying in power Mr Rudd. Yet another “botched job”, dont remember any financial advisers getting electrocuted!!! As a Risk specialist the impact on my business is minimal at this stage, however goodbye to the Mum & Dad clients & small business owners if Risk payments are removed as well. Sorry, cant afford to keep you on my books if “insurer remuneration” disappears. Isn’t small business what keeps Australia (the world) ticking along??? Shouldn’t our tax funds be going into shonky roads etc, thats where people are getting killed, not JPC on the very healthy financial planning industry. Soon everyone will be dying without Life insurance. At least I could work with Centrelink going forward, they are just going to get busier. By the way, you think 47% tax rate is high. Give it 10 years when it needs to be 55% to cover the sick, injured, traumatised & dead uninsured Australia’s out there. Oh yeah, they won’t have any investment funds to fall back onto either as 95% of the population couldn’t afford to receive “quality advice” in the first place.
Well done Labour, u rock!!!
Cheers Churchy.
I am ashamed to say that I didn’t visit the ISN website until last night, to finally dig into their claims over fees and see what basis it has – as clearly this misleading advertising campaign has been hugely successful in directing government policy. From the ISN and IFFP websites, after much digging, I am gobsmacked. In every instance, MY initial fees (which are also fixed fees) were cheaper. And where is the value to clients when there is no ongoing contact charged by IFFP, no consistency of advisor, and an annual review of 4 hours estimated time for $880 only if you ask for it? I have no problem with fee for service, but I am ropable about the ISN using misleading ad campaigns to make all of us financial advisors out to be ‘ripping people off’!
The IFFP fixed fees at $220 an hour puts financial advice out of the reach of ordinary Australians. Even advice on government co-contributions costs $660 as a guide, something we do for no charge.
And wait for it on insurance – they charge just $440 for an insurance plan (i.e. 2 hours work, less than advising on govt co-contributions) so we rang them as a prospective customer intrigued to see how they do it – they absolutely rebate every dollar of commission even on insurance they say. But it turns out what they do on insurance is effectively a needs analysis report only, with you then taking insurance inside your current INDUSTRY super fund. And if you have to make a claim, they tell you to ring the super fund, otherwise they can help you with your claim but will charge you $220 an hour. This doesn’t sound like it goes anywhere near meeting the’ know your client, know your product’ requirements of the Corps Law, so we asked why they recommend insurance in their industry funds. The answer: because their insurance is the cheapest! Whoever has tried to get an insurance claim on behalf of a sick client from an industry super fund knows how hard it is, so this doesn’t pass the smell test to me. Does anyone know if the industry fund gets a commission on insurances written? Sue, can you investigate further?
I’m putting together a comparison, plus the value of advice powerpoint, and I’m booking an appointment with my local MP…..!
I will preface what I say by confirming I am a Risk Insurance Specialist however: Once again the actions of less than 5% of advisers and dealer principals have caused heartache for 95% of advisers who “do the right thing by clients”. It is a weak, knee jerk reaction by “yes men” in Canberra who have probably never taken the time to see the great work we do for clients day in and day out. If an alternative government can offer a better alternative than this then I will look at their proposal very carefully as this government would not have a clue.Also great to see Life Companies and Fund Managers standing up for the work we do and voicing their disapproval of these reforms……NOT.Their silence has been deafening.Finally,I just feel really sorry for the Lower and Middle Class families and small businesses who are now the major losers in this reform buy not being able to access quality advice from quality advisers.
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