Successive Govts, not advisers, to blame for advice policy shambles

There was a time, more than a decade ago, when Money Management’s Top Financial Planning Groups research would reveal groups such as Professional Investment Services (PIS) as having the most financial advisers, albeit that the average level of wealth held by clients was comparatively modest.

The reason that PIS advisers, and indeed AMP advisers, could service large numbers of clients of comparatively modest means was not related to their generosity. It was related to the existence of commission-based remuneration structures and the reality that volume rebates were being channelled to financial planning dealer groups by a variety of product manufacturers.

Bluntly, the delivery of affordable advice was being delivered as a result of subsidisation by product manufacturers.

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All that changed in the face of the anti-commission campaign initiated in large part by industry superannuation funds which gave rise to the Future of Financial Advice (FoFA) legislation and the raft of regulatory initiatives which have attached to that legislation.

Fast forward to 2021 and the reality that the dealer group that was PIS is now under the umbrella of the publicly-listed Centrepoint Alliance, that AMP is itself dropping sub-scale advice firms, that the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, is talking up the need for making advice more affordable and the Australian Securities and Investments Commission (ASIC) is undertaking an Affordable Advice Review.

Also, in 2021, is the harsh reality that financial advisers have been openly culling their client lists of those who they assess as being low-balance and high maintenance with the result that hundreds if not thousands of those clients are now finding themselves “orphaned”.

Little wonder, then, that as part of its Affordable Advice Review process ASIC has appeared drawn to advice delivered under the auspices of superannuation funds or via algorithmic/robo advice.

So, the end game may well be one in which instead of affordable advice to the masses being delivered as a result of subsidies provided by product manufacturers it is, instead, the result of subsidies provided by superannuation funds with algorithmic/robo advice providing an entry point.

So, the question arises. Are low-balance clients going to be any better off under the evolving new regime or were they actually better-served in the supposedly conflicted old regime of product subsidies and commissions?

No one is suggesting that the provision of financial advice should go back to pre-FoFA days, but it is clear that a succession of policy-makers in Canberra have failed to understand the implications of their legislative actions and to identify a sustainable end-game.

In the meantime, and despite successive surveys confirming the value of professional financial advice, thousands of clients are finding themselves orphaned and with few affordable options at a time when the investment environment has rarely been more complex.

In all the circumstances it is arguable that post-FoFA and in the wake of the Royal Commission, it is not financial advisers who have failed their clients, it has been a succession of Governments, policy advisers and inappropriately politically-ambitious senior executives within the financial services regulators. Their legacy is there for all to see but they do not want to own it.

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This Govt is inept. The solution is a move to 5 yearly opt-ins for "regular" investors. That will provide the best outcome for all concerned.

Spot on Mike
Pity the Canberra bubble bureaucratic morons will never accept any responsibility, rather push Conflicted mythical Robo Advice.
Industry Super, compare the pair, the major players growing Intra Fund and General Advice / Sales on HIDDEN COMMISSIONS, yep those Industry Funds are pushing for more and more Hidden Commissions and Commisions charged to All members when most members don’t get Advice.
Hypocrisy to the highest degree.
Industry Super, single product, vertically integrated call centre jockeys, selling selling selling. No BID, no FARSEA, no AFSL compliance.
And all with help from ASIC to allow it.
What a sad joke is the total Regulatory Capture Corruption of ASIC and Industry Super :-/ and the LNP also allow it and promote it.

As a historically LNP voter, not for years now, their incompetence and naiivety has been the most breath-taking and disheartening observation to make over the last decade.

Everyone has lost in these ongoing debacles.

for many successful advisers that remain. business has never been better. I see about 4 clients a week, I decline 3 and take 1, who is pretty much in all material respects perfect and ideal for my business, and can afford to pay.

you can't blame advisers for successfully evolving their business models to survive (and for many of us to thrive) in a new operating environment.

no one is going to serve retail clients, they will be left to their own devices and the only people I blame are overzealous consumer action groups. the people they are advocating for so much will be the very people that will not be served.

serves them right.

you make much sense

Yep and on to Mortgage Brokers now.

Destruction of Financial Advice industry worked so well let's get rid of the next free market annoyance - subsidised Credit Advice that provides the competition to Big 4 Banks.

Then we can kill decentralisation in all its forms. On to crypto after that and also the use of cash.

oh, their fate is already sealed. come 2022 most will collapse, first will be no commissions, which is already legislated but deferred until 2020, this will get rid of 50%. in the Netherlands, the government moved to a fee-based model, and that wiped out 50% of mortgage brokers.

the second hammer will be that the existing trail on the mortgages already on brokers' books will be grandfathered for a period, remember the average life of a loan is only 3.8 years.

the 4 major banks who are driving this (as all other second-tier banks, credit unions and other various lenders are dependent on a variable low-cost distribution like brokers actually support mortgage brokers and the commission model) will then lobby the government hard to get rid of grandfathered trail commissions "because it's conflicted remuneration" that will kill the remaining 50%.

the largest mortgage broking businesses btw are already owned by the big banks, Smartline, Aussie, etc.

the irony in all of this is that when mortgage broking first started, there was no trail commission, there was only upfront and no trail and no commission clawback. now the first one to guess the next part of this post gets the door prize.

question1: who introduced trail commissions?

answer 1: the lenders themselves.

Question 2: Why?

answer: because mortgage brokers did not keep the loans on their books long enough for them to profit

Question 3: but isn't the cheapest price mortgage in the best interest of the consumer?

Answer: well of course it is?

so there you go, the major banks came up with the trail commission model in the first place to "share profit" (and reduce churn haha) with the brokers, then they introduced a clawback of up to 2 years so that the mortgage broker has no choice but to keep the loan on their books for two years or be paid nothing (sound familiar?)

despite that :

mortgage brokers' market share has skyrocketed where more than 50% of the new loans are being distributed by them, and more than 70% of refinancing.

the HARVARD MBAS's at the big banks can't understand why consumers are choosing a cert iv qualified mortgage broker (service of course) over their proprietary channels which is costing them billions to keep open (CBA has 2000 branches)

cap in hand they go with their big checkbooks asking for the government to intervene as their Harvard MBAs (i have one btw)
didn't give them enough skills to compete with the one-man-band mortgage broker most of whom make up the vast majority of mortgage brokers in Australia.

and don't worry the government will comply by asking the taxpayer to foot the bill for the $170 million RC (reasonable basis anyone) so they can use that as an excuse to do the rest.

bye-bye mortgage brokers.

this post constitutes 1 CPD point, send it to your licensee head of CPD they will accept it.

aussie john symonds is not stupid, he already sold out and is enjoying himself tax-free in monaco.

ha ha

Absolutely bang on in every regard.

As to the older 'conflicted' models - they could have made this conflict much more simply disclosed and clients could see it and accept it if they chose. It's the old car dealer story - if you go to a Ford Dealer, you are happy with a Ford and not expecting a comparison between other brands. If you went to AMP it was very obvious what product you would get, but you were also getting some advice and as long as that advice around strategy was sound, the product only needed to do the job you felt it would. The bleeding hearts went too far, and took out a valuable and useful component of the advice chain - only to be replaced by other super fund product manufacturers as Mike states, simples.

Agree with this article, but we need to be very careful when referring to the pre-fofa world and low balance clients receiving "affordable advice". The truth is that most of those small clients didn't even know who the person or business was that was listed as their Adviser. I started my business in 2007 and spent the first few years reviewing plenty of clients existing arrangements and the first question I'd always ask thm is why they don't go back to their existing Adviser, the answer was always that they had no idea who that person was and had never had any contact from them.

We haven't found the right mix yet but the old bank/AMP gravy train days shouldn't be reflected on fondly.

this type of thinking is what makes me really irate. you are conflating a number of issues.

in the past, most financial planners have had very little control over operations and how advice businesses have been run. we have much more say in what is done today.

if I used opt-in and fds as an example went through your book and reviewed whether a FDS was provided to clients before 2010, I would find none.

you cannot use today's standards to judge things done in the past. the industry has acknowledged many failings of the past, that was in the past, we have moved on.

the vast majority of financial planners are highly ethical and highly valued by their clients. the data corroborates this the number of financial planners who receive complaints against them (and in fact mortgage brokers too) is statistically insignificant when compared to the general population or other professions in general.

financial planners overall are highly ethical and competent, we are unnecessarily blamed for issues beyond our control.

all financial planners MUST stop blaming other highly competent professional ethical colleagues immediately. PLEASE STOP.

" in the past, most financial planners have had very little control over operations and how advice businesses have been run." this comment is total rubbish. You're basically saying that Advisers had no option but to keep all of their clients in high fee products with entry fees and ongoing trails. The ability to rebate trails and instead charge a mutually agreed on fee came in back in 2007/8 for most product providers. Yet here we are with 12/13 years down the track with Advisers crying poor because the gravy train has finally been turned off.

Client books getting passed around from Adviser to Adviser at obscene multiples and in a lot of cases never any attempt made to even contact the client.

I'm not judging those times by today's standards because the standards haven't changed - being open and transparent with your clients and charging a fee in return for you advice. That didn't happen back then and now we have all this ridiculous legislation to force people to change their ways.

All I'm saying in my initial comment is that they were not good times for clients, they were only good for the Adviser.

again you are pandering to the false narrative that exists, that advisers have had the power to resist the prevailing model that existed prior.

who came up with APL's? What products existed on an institution APL's?

did you try to get a non-approved product on the APL in the past? how many genuine non-institutional AFSL's existed in the past?

how long did the process take? that's just a small example of what we have been up against.

you give little credence to the plight of the financial planner and not enough discredit to the powers that be who insisted on and propagated the faulty advice models.

I should know, I have resisted it all. many other older advisers who have seen it all could easily confirm what I am saying.

again, I assert, most of my professional financial planner colleagues are highly competent and highly ethical. so should you.

Mate i've been in the industry for 18 years, I've never felt compelled to work for a large institutional licensee. There's been an abundance of non-instituationally aligned, flat fee dealer groups that rebated all overriders to the adviser who could then pass it on to their clients.

I completely agree that most advisers are very competent and ethical people but you seem to think them spineless as well. Suggesting that while they'd like to be providing the best possible advice to clients they couldn't because the employer (that they chose) didn't allow them to because of a limited APL. Again that's just rubbish.

There has been to non insto advice model for at least 23 years I have been an adviser.
Sure it wasn’t as common and wasn’t as easy as the insto owned product flog / bank gravy train.
But not only did you get to provide real advice, select products on merit and actually build client relationships. You got to keep your soul too.
Fortunately with the banks leaving post RC it’s proven the best choice.
The main thing the RC should have done was ban vertically owned product providers and advisers. And then most of the BS Regs trying to make conflicted product advice seem non conflicted could disappear.
If the Govt is too stupid to make this change then Real Advisers must. The rubbish vertical advice model has now just moved sideways from banks to Industry Super. They will suffer the same fate at some stage.
Take some time and effort to build a real Advice business, yourself or with an Accounting client base and you will win if you provide Real Advice.

This is spot on, Brett.

This over the top legislation and regulation doesn't surprise me at all, because I still see a lot of 'clients' who don't know their 'adviser' yet have been paying them for over a decade.

'Clients' have been considered nothing more than revenue to multiply in a future business sale for way too long. Everyone knows it, those not willing to say it have probably been the ones buying up books and not servicing them.

Sorry guys, being 'available' if a client needs you isn't a service. My dentist is always available when I need a meeting, but I dont pay them a retainer, only when I see them.

And I am coming across thousands of super fund members who are being charged ongoing "intra-fund advice" fees, receiving no ongoing service, and would have no idea they even have an adviser (for the 40 years of intra-fund advice fees they are going to be charged). Sorry people, this has nothing to do with providing "advice", but rather re-building a whole new tied agent vertically integrated money funnelling scheme into corporate & industry super funds. What a scam.

It's a bit of the chicken and egg situation. If the financial advice industry had sorted itself out and became a body of independent and qualified professionals with a decent and independent professional body implementing and enforcing professional standards, then the Government/Haynes/ASIC et al would not have had to enter the scene and attempt to clean up the mess or make the mess worse.

It is no fault of financial advisers to charge market rates for their services. Not everyone can buy expensive houses or cars.

I don't think you understand and necessarily know what you are talking about. but there are many like you, and that is the root cause of why we find ourselves where we are; a jumbled mess of incoherent legislation that baffles even the most astute commercial legal practitioners

who created the AFSL system? who were the architects of it? if you are trying to blame the largely unresourced financial planner for a system created by multi-billion dollar companies to the detriment of the consumer (it was designed that way) you are sorely mistaken

financial planners have been pawns mostly and used for target practice, so let's not get a bit rich with examples, I can give you many more with an opposite view that you might not fully understand

the FPA has tried for many years to professionalize the industry. the government has not listened to them at all. the governments of the past have been biased due to heavy lobbying by large institutions.

the only recourse most financial planners have had is to :

a. leave, which they are doing as is apparent by a mass exodus underway and;

b. increasing their fees

Whether or not individual advisers could have done more to work around the inherent flaws in the system could be debated forever.

What is beyond debate is that successive governments always had the power to quickly fix those fundamental flaws for the benefit of all consumers, and have failed to do so. The solutions are obvious. Individual licensing and a ban on vertical integration. Not the current patchwork of stifling, inefficient, regulation, which is a feeble attempt to paper over the cracks without addressing the core structural problems.

what you did in the second half of your second paragraph, starting from "the solutions are obvious"..., I could not do in many more. thank you, that's what I am saying.

Spot on with your last two sentences.

Hedware, I don't I've ever agreed with anything you've ever said, there's a first for some things!

BTW the first part of the para is spot on too. Vertical integration was the obvious problem NO GOVERNMENT ever confronted, AMP, UNION funds the lot. It should have stopped more than a decade ago yet it still persists.

And just like that 28k advisers will go down to 13k, just when demand for advice is off the charts. You don’t have to be an economist to understand what these supply and demand dynamics do. At 13k adviser population, you can expect fees like CBD lawyers, just like people need money to get justice, they are going to need deep pockets to get advice. It’s amazing how little press there is about what the price of advice looks like when the number of clients per adviser plummets due to regulation, the number of advisers plummet and the demand for the service goes up. The recent fee increases are but a drop in the ocean compared to what is coming, expect exponential increase from here. I am already having people banging down my door to become clients and I am turning most away. Government is sowing the seeds of the next regulatory intervention through make big super, who are just another conflicted product manufacturer, the saviour. I’ll be grabbing my popcorn.

You are correct. I've had one prospect say "I hope we are good enough for you to take us on". This is before we provided a fee estimate.

This is the beginning of the end of advice for regular people.

Advisers can't get too cocky though - wait till you see what it costs to retain an adviser as an employee post 31/12/25. Many are being forcibly removed, no where near enough are joining. We already had an aging adviser problem prior to FARSEA, it is going to be brutal if you are an employer in financial planning.

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