12-monthly opt-in back on the legislative agenda

Financial advisers fought hard against the notion of annual opt-in within the Future of Financial Advice (FOFA) legislation but an adviser group is now pointing to the Treasurer, Josh Frydenberg, having moved to institute the arrangement out of the Government’s Royal Commission response.

The Profession of Independent Financial Advisers Group (PIFA) president, Daniel Brammall said the Treasurer had announced last month that legislation would be introduced before 30 June next year “that will effectively illegalise the current opt-in and fee disclosure statement (FDS) arrangements”.

He said that, as well, the Treasurer had signalled the Government would be tabling legislation which would mean that financial advisers were not permitted to provide advice to a new client without first declaring whether they are independent and, if not, why not.

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“These reforms add to the complexity that is already facing advisers, burdened by the FASEA [The Financial Adviser Standards and Ethics Authority] education requirements, the loss of legacy commissions that were supposed to be grandfathered, and then there’s the looming membership of an as yet unapproved Code Monitoring body (it’s just six weeks away, folks),” Brammall has told PIFA members.

The Association of Financial Advisers (AFA) has similarly drawn the yearly opt-in move to the attention of members.

The concern on the part of the PIFA and AFA relate to the Treasurer’s Royal Commission roadmap implementation document which, under the heading of legislation to be consulted on and introduced by 30 June, next year, cites “Recommendation 2.1 – annual renewal and payment for financial advice” and “Recommendation 2.2 – disclosure of lack of independence of financial advisers”.

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I hope our professional bodies are on the ball here. I could wear annual opt-in if the sole purpose test is updated to include financial advice. That should be the trade-off and the AFA, FPA et al should be willing to fund prime-time ads like the mortgage brokers to make their point. The uncertainty around adviser service fees in super needs to be removed so we can all get on with the job. Why should it matter if I give a client advice which builds or protects their wealth outside of super, and the fees come from the super fund? The better off the client is, as a whole, will reduce their reliance on, and increase the longevity of, their super. So it's all consistent with the intent of super. But with ASIC and APRA playing silly games and threatening super funds over the sole purpose test, we need this issue addressed urgently!

There is nothing wrong with the principle of annual Opt-In. But there are big problems with the practical implementation of it. Clients will often reschedule meetings, be away travelling, lose important documents amongst the forest of other bureaucratic disclosure, etc. etc. They will unintentionally fail to Opt-In in time. The adviser will be caught up in endless admin trying to chase them, and juggling complex paperwork to turn fees on and off.

Most advisers I know get their Opt-Ins completed at annual review now anyway. The legislated two year maximum provides a buffer for the inevitable delays that can often stretch client completion of annual review paperwork out to 18 months or so.

If the government does impose annual Opt-In let's hope they consider the potential unintended consequences, and incorporate a 6 month grace period before fees have to be turned off and the client unintentionally becomes an ex client.

Why are they surprised or arguing against the annual opt in ? It was the key piece of Hayne's findings.

Because Hayne's findings were based on an unrepresentative sample of extreme situations, and made by a retired lawyer with no practical understanding of the financial services industry.

Hayne's finding should NOT be blindly implemented by the government just to appease the media. They need to be carefully considered for practical impact and unintended consequences. Hayne himself probably never expected his naïve recommendations to be slavishly implemented without proper consideration and refinement.

Lets be honest though, aside from still thinking that vertical integration is ok, Hayne was pretty spot on.

People only complain about the changes because it hit's their profit as they cant take the urine anymore. Provide a service and get paid accordingly.

You hit the nail on the head Reality. Advisers act in their own interest when it comes to charging clients and how they can get away with charging a lot for very little.

Billy, Advice Fees now are simply a refection of the cost of compliance. Advisers are being directed to comply with the mountain compliance and being told that this is in the best interests of the client - a bit like commissions paying 0.4% were conflicted now advisers charge fees - it is the "new" model we are told. No point complaining now.

Reality, perhaps you have not been keeping up - vertical integration in the retail space is moving to the one stop shop model of the Industry Funds - and perhaps you feel this is not vertical integration but lets be honest, it is. A news flash, AMP is basically leaving self employed Advisers (who are licensed by AMP - which is last I check required to be able to provide advice) and will be moving to employed advice - just like the Industry Funds. They will consolidate the existing products down from 70 plus to about 5. You can rest easy as the new employees will get paid - out of the admin fees on the product and there will be none of these employees recommending anything other than the house product. I00F is doing the same by going forwarded with employed advisers and teh Banks are out - a job well done by the Industry Funds who have a one stop shop, employee staff who I believe recommend nothing but the house product, are paid by the product that they recommend, and the product charges everyone a fee for the service even if the service is not used.
So tell me, who is taking the urine?

You continually come from the point of 'industry funds do it so its ok'.

Not ok for anyone. Fees should be charged based on services rendered, plain and simple.

AMP should have had their AFSL cancelled a long time ago, however, I am glad they didn't as its been the easiest short in ASX history.

Reality, it may seem that I have the view that they do it so it's OK but I don't - I agree it should be a level playing field. I do however question how ASIC and now a Liberal Government can stand by and allow if not encourage one part of the Industry to operate with what appears to be complete immunity. The question is why? A Labor Government supporting the Industry Funds I understand. Lets face it, no Federal Government has been more successful at eliminating Industry Super's competition in terms of speed, $ transferred and legislation - and they have more to do. Prime Minister Scott Morrison must be aware of this and it will I suspect be seem as one of his legacies - a champion of Industry Super which is hard to deny when you look at the facts. Don't expect ASIC to start investigating Industry Super anytime soon. Time to move on.

Oh don't get me wrong, I completely agree. Don't stop at that either, crack down on them advertising a fund with 90% growth assets as 'the best performing balanced fund' etc also.

Wondering, I cannot understand why you and most other advisers continually slam the industry funds (and now AMP). How do you know how AMP employee advisers will be paid?

By the way there is no prohibition against a licensee recommending its own product. It's not only industry funds that do it.

Oh sorry, perhaps advisers don't recommend industry funds because they don't pay life insurance commissions and it is difficult to be able to deduct the client advice fees from an industry fund super account.

I assumeyou are an adviser and therefore I presume you are aware that advisers employed by industry funds /AMP / any other licensee must follow the same rules when it comes to recommending a financial product (eg super) to a retail client. In case you don't the adviser must be able to demonstrate the strategy and product are in the clients best interest.
Do you have a particular wrap that you recommend? Do you have particular fund managers / insurers you recommend?
Nothing wrong with that, as long as you can demonstrate that those products are in the particular client's best interest.

On a tangent, you're actually a sales rep for an industry super fund. You're not really an "adviser". If the media call AMP planners sales reps than the term also applies to you.

Billy, you seem to have made a few assumptions but you ask some good questions - and as most things in life, the devil is in the detail and not the headline pushed by the media.

No Adviser (and I am talking about Financial Planners not this loose term Advisers) is steering away from Industry Funds due to the payments or Commission. When you invest a clients money it is not a simply case of finding the fund with the best returns at the least cost - there is a concept of RISK which, in the PC Report by Ms Chester convienently forgot. Just because HOST Plus (and Industry Funds in general) say they have a "Balanced" investment option does mean it is. The clever (it's actually not very clever but has certainly fooled the Regulators and the Media) tricks Industry Funds plan is 1) calling growth assets defensive and 2) having Unlisted Assets. You should know what this means. Do you actually know what the true exposure to growth assets Host Plus holds in the Balanced option? Do you know when they report the asset allocation? Do you know what is in the unlisted assets and how these are valued? How do you think Industry Funds claim to have the best returns year after year, decade after decade and all at the lowest cost? Frankly, I do not have many client who when they understand investment risk, are willing to take that much investment risk. Additionally, if a client can tolerate this level of risk, the claimed out-performance of Industry Super is often found within the unlisted (Blackbox - trust us mate) property portfolio - and if you want conflicts look at this. Often, we can recommend a portfolio which when adjusted for RISK, will outperform and at a price that represents value - if not cheaper.
If you want insurance, that is another day but just have a look for yourself at the definitions of TPD in say Australian Super - not all definitions are the same and again, the devil is in the detail.
And thirdly, Advise is not all the same. Industry Super rely heavily on General Advice but basically in my opinion they are providing Personal Advice (and I'm not talking about the Financial Planner at an Industry Fund - I'm talking about the call center staff). They do not have Best Interest Duty.
Recently had a conversation with an Adviser from a very well known Industry Super - he managed over a dozen Financial Planner employed by that Fund. He was very please to tell me that they only charged (and this is to those seeking personal advice - not the call center staff) a small upfront fee for advise and an SOA. When I asked how he covered the costs of the Advisers wages, rent etc he looked blank - all this you see is paid for by other member out of the funds admin fee etc. Sounds like commission to me (paid from the admin fee). I asked what Super funds etc he uses - have a guess..... and it seems 100% of the time. So is this advice conflicted? Why has ASIC not investigated an Industry Fund?
I suggest you do some research.

Billy, how could any ISF be in a clients best interest once you compare it to a small pool of alternatives? Inferior insurance definitions, no level premiums, no tpd linking, claims experience horrendous, member portals/trust deeds/beneficiary options and investment option transparency abhorrent. Jog on

This is my point exactly. Also how can the other planners that take referrals from the industry funds sit there with a straight face and say lets scope out the super account. This is going to come back and bite these guys at some stage. You can keep scoping out the fund itself if you work for it. You work for the fund, you ARE the fund. You are a salesperson beholden to that fund, its your master you are not an adviser. Its like the commsec phone jockeys ( who I was one of ) saying they are stockbrokers. Yes they execute trades, but they don't give advice. Damn right jog on...jog away as far as possible.

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