The moment of truth for financial planning

As the planning industry considers ASIC’s consultation paper on conflicted remuneration, Ian Knox argues that the spoils will likely go to those with the most time to mount elegant arguments.

The planning industry is teetering on a moment of truth, which will shape the ownership of advice for years to come.

It’s not the staid ‘scale’ debate that so many commentators talk about, and it makes things quite interesting and different this time.

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Contrary to the obviousness of BT, AMP and MLC buying adviser market share for distribution, the new centre of influence is actually the Australian Securities and Investments Commission (ASIC) as it grapples to interpret and legislate the spirit of the Future of Financial Advice (FOFA) reforms in the very key area of so-called ‘conflicts of remuneration.’ 

ASIC’s paper is presently in ‘consultation stage’. What this means is ASIC is seeking input from the industry on how it should interpret what a conflict is before enshrining adviser behaviour in law.

The trouble with consultation papers is that they play into the hands of the power-brokers and lobbyists, because it’s the majors that have the most to lose and the most to gain by articulating exquisitely intelligent arguments to retain the status quo – why wouldn’t they?

Equally, small business doesn’t have the time or money to respond – but often has the intellect and the answers.

If you’ve read the paper (ASIC consultation Paper 189) as drafted at present, you’ll know it can be read multiple ways, and its interpretation is up for grabs.

The fuss isn’t around the hoary chestnut of yesterday’s debate on commissions and investment bias – it’s all about the grandfathering clauses.

The grandfathering clauses are very well-meaning because they attempt to protect revenue streams that were entered into legally, and the Government is conscious of the need to separate past and new behaviour.

One suspects the minister imagines ‘clients’ best interests’ and ‘opt-in’ will largely overcome these concerns. 

What’s really interesting is that the grandfathering provision is all over the place and needs some clarity on what’s in and what’s out.

This is the tricky bit because everyone wants to read a different outcome and astonishingly [not], the institutionally-owned platforms have largely concluded that everything will remain the same for all advisers and dealers who have entered into what is termed an ‘arrangement’.

The truth is this assumption is debateable, and if ASIC decides that the spirit of FOFA’s intent will be triumphant, then grandfathering will not be the panacea the platform owners want it to be – and grandfathering will be redefined.

So what happens then?

Well, as a starting point, the lobbyists in the banks have to ensure that this doesn’t happen, and their current management teams have to tell advisers in the aligned networks that everything’s under control because they’ve met with ASIC and the Government and they have the balance of power.

But do they – bearing in mind that the Government introduced FOFA because of their behaviour and leadership in the first place?

This also needs some consideration.

So why all the fuss? Because if a planning practice is considering leaving a dealership (and 90 per cent are bank- and AMP-owned), then the last thing the dealer wants them to find out is that there is a window of opportunity to grandfather now with the new dealer – but that after 1 July 2013 it could become immeasurably more difficult and expensive.

Also, the later it’s left, the more it looks like anti-avoidance – so the opportunity is now, not later, even if the intention is worthy.

Perhaps it is for these reasons one hears that some institutions are paying aligned practices three-year gratuities just to stay; some are paying horrendous sign-on fees; and some are bringing forward volume payments.

Is this anti-avoidance, one wonders, or at worst, are we getting to a stage where the Australian Competition and Consumer Commission needs to start thinking about things?

Either way it’s not quite in the spirit of FOFA, and one might add that it’s low quality leadership – but then again … business is business. 

On the bright side of things, the balance of power can swing if planners take control and determine what’s best for their clients in the years ahead. This would be a wonderful outcome, as it puts the profession and power into advisers’ hands. The contrast is stark:

  • Have to stay in a dealership for distribution reasons because they’ve been paid; or
  • Choose to be in a dealership for all the right reasons with a bright future ahead.

As the circus rolls along we would do well to remind ourselves that consumers want good planners, transparency and good advice, and will pay fair value for a trusted, honest relationship.

These points are immensely supportive of a growing, healthy industry – without the need for backdoor payments, distrust and cross-sell obligations.

The contrast is stark.

(The views expressed are those of Ian Knox and not representing any party.)

Ian Knox is managing director of Paragem Pty Ltd and responsible manager of the Paragem AFSL.

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