Up to 57% of financial adviser practice income is being placed at risk by the Financial Adviser Standards and Ethics Authority’s (FASEA) approach to the Code of Ethics, according to the Association of Financial Advisers (AFA).
In a communication to advisers to be issued this week, AFA general manager policy and professionalism, Phil Anderson said that the FASEA board appeared to have chosen to use the code of ethics as an opportunity to rewrite the law.
“As a result, the entire financial advice sector is left completely uncertain as to what will be permitted under the code and what will not, with less than two months until commencement and no obvious way to fix this problem,” he said.
“With all forms of commissions and asset-based fees now in doubt, 57% of financial adviser practice income is at risk, as a result of this version of the Code of Ethics. This will impact both financial advisers, but also their clients, who might be forced to change their adviser’s remuneration arrangements at very short notice.”
Anderson said the AFA was concerned that the code was putting at risk the ability of advisers to provide cost-effective scaled advice by mandating the requirement for a much more comprehensive understanding of the client’s personal circumstances and likely future circumstances.
He said Standard 3 on conflicts of interests was completely inconsistent with long-established requirements to manage and disclose those conflicts, and a ban on the receipt or provision of referrals would fundamentally challenge existing practices and impact on the flow of new clients.
Anderson said the FASEA approach had left the advice profession with no choice other than to oppose the Code of Ethics in its current and ask the Government to deliver a delay on its commencement.
Comments
Standard 3 is a blatant and manipulated strategy to deliberately alter remuneration.
The frame is the Code of Ethics, but the clear intent is to have advisers and licensees breach the code merely by continuing to receive legislatively approved remuneration.
Stephen Glenfield needs to immediately and very clearly explain exactly what input and influence ASIC had into the wording of Standard 3 as it is now well known the position ASIC took regarding the recommendations and/or submissions for grandfathered commissions during the Royal Commission.
This is not about ethics in relation to the delivery of financial advice.
This is about deliberately designing a code specifically for the purpose of altering remuneration models.
Minister Hume needs to immediately address the inequity and discrimination that is applied to financial advisers through this deceptive and unethical document.
Perhaps the 2 FASEA board members who are current practitioners would like to stand up and defend their own rather than hiding behind this appalling process that now needs to be completely re-thought.
Where are you Deborah Kent ???? (ex AFA National President and Treasurer).??????????
Have you forgotten entirely the people and businesses who you used to represent ?????
What a disgrace.
It feels like the profession needs to have fewer human advisers as they are too risky to maintain. Apparently the Government is encouraging venture Capital to assist clients to bypass advisers with fintech initiatives such as Robo advice.
It's hard not to argue that Ms Kent owes the AFA membership some explanation for her involvement and advocacy on this board.
I sent her an e-mail as soon as she was appointed asking about her conflict - still waiting for the reply.
That's me Bankrupt.
Thanks all involved.
Enjoy your Government and bank salaries.
I will be in to see you soon to say i can't make my loan repayments.
I can't believe it took this bloody long for the penny to drop. Finally one of our associations has read FASEA's guidance and understood it. Let's hope the FPA have woken from their slumber too and are raising hell in Canberra. If serious action isn't taken in the next few weeks all hell will break loose. The sudden destruction of capital and loss of jobs will be unbelievable. And how will consumers feel when they discover their financial adviser has been sacked or is bankrupt, and financial planning firms have been closed down en masse? This will have a very real and measurable impact on the economy. If Morrison, Frydenberg and Hume haven't been listening to financial planner concerns about FASEA, things are about to get very real.
It's is all madness. Seems to me the only way forward is to be a simple employee "Adviser" working for Industry Super giving "General Advice" Heard an ad of Sydney Radio Monday evening from Australian Super - call and speak to one of their "Advisers" and start an Allocated Pension - but they also clearly stated that this is "General Advise" and may not be suited etc. Using the term Adviser and still giving completely conflicted advice seems to be the way the big guys will tackle it - and the privately owned Financial Planning practice will dead by January 2020. I guess this helps the Trustees take control of the flows of FUM. They will not have to manage conflicts as they will clearly be COMPLETELY conflicted and this is now all OK.
It seems many FAs think being an AFSL rep is a license to extract money from clients. Professionals such as lawyers and accountants charge fees for their services by the hour. You need a conveyance done there's a one-off fee for the service, not an annual fee based on the value of the house for the rest of the years you own that house. Lawyers don't get trail commissions on multi-million dollar deals they advise on. Accountants don't get paid based on the total value of assets for financial reports they prepare. Professionals agree an hourly rate or a fixed fee for service. You see a Tax professional once a year and don't pay them a percentage of your whole income. What makes FAs think consumers are happy to pay them any differently? There is no justification for it. It's flat out gouging and greed and both regulators and consumers have had enough. Smart advisers will move quickly to fee for service models. Ignorant and greedy ones will be the ones that end up out of business and broke as a result of long overdue changes. You might just find you attract more clients with a fee for service model. Oh, but that could mean more work and less golf and ski trips. Welcome to the real world of ethical hardworking trusted professionals.
You make many assumptions in your statement - many of which I do not see reflected in the real world or Accountants or Lawyers. Perhaps you have not had the benefit of dealing with clients with large amounts of money - Accountants and Lawyers in my experience are very good at charging based on ability to pay.
Your example of a once yearly i return with your Accountant is very simplistic.
In that case lets consider a realistic scenario.
Complex Risk Insurance case.
5 Directors of company all requiring Key Person Insurance and Buy/Sell equity based protection in conjunction with Buy/Sell Agreement and Estate Planning Advice.
Ages of 5 Directors vary from 35 to 60.
Initial group meetings and discussions and data collection x 2 @ 2 hours each =4 hours.
Analysis of appropriate product options, discussions with insurer and various quotation options for each Director. @ 6 hours.
Preparation and completion an of 5 individual SOA's @ 15 hours.
Individual meetings with each of the 5 Directors to complete individual SOA's and insurance application process @ 10hours.
Follow up assessment process and underwriting requirements including medical examinations, financials, liasion with Accountants and Solicitors etc. @ 10 hours.
Finalisation of issued insurance policies and group meeting with Directors to ensure full understanding and review of strategy etc @ 3 hours.
Total combined annual premium @ $40,000.
Deduct all initial commission from annual premium reduces premium by 28% to $28,800.
Directors pay the reduced annual premium @ $28,800.
Directors receive an invoice based on an hourly rate of $350 (equivalent to the Accountant or Solicitor...ie Professional fees)
Invoice at 48 hours x $350.00 plus GST = $18,480.
Total combined cost of advice and product = $47,280.
Total cost of advice and product if full initial commission paid: $40,000.
Total increase in cost to client = $7280 or 18%.
Advice provided is in the best interest of the clients, thoroughly analysed, assessed and compliant and professionally managed from commencement to completion.
You explain why these clients should not be provided with the option of paying for advice and product either via commission, invoice only or a combination of all available options to suit their requirements ?
Is it better for the client to pay an additional 18% in cost to secure the correct strategy and product or is it acceptable the client can elect to pay 18% less, receive exactly the same product and strategy in the knowledge that the full disclosure of the commission payment is clear, concise and represents value to the client.
If the client can pay 18% less in costs and the adviser is remunerated from the product rather than the client having to pay the adviser as a non deductible expense from the business or personal cash flow, is this in the client's best interest ?
I look forward to your analysis based on fact, reality and client cost not based on ideology, self image or where you feel you belong in the world compared to those beneath you.
Could I suggest you stick to billing clients in 16 minute increments and or stay in your Superfund call centre. The greatest value is actually the ongoing relationship and behavioral finance process/education/coaching. I'm more convinced of that after working in an Accounting firm charging by the hour. The relationship is transactional, piece meal, adhoc and the quality of financial advice is somewhere between poor to average. Please don't get offended with that last statement but it's not a reflection on Accountants it's the hourly rate system they are captured in. there is always someone else willing to pay more or another sole coming in the door and so naturally "things can wait" and that's where poor outcomes arise. Advice via a super fund call centre is the same.
....and ASIC will then say the fees are excessive even though they say that the fees charged are determined by the market.
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