The Association of Financial Advisers (AFA) has written to members ahead of the final report of the Royal Commission forewarning of possible adverse outcomes, including the banning of grandfathered commissions.
In a newsletter sent to members, the AFA said the Royal Commission had asked repeated questions which had given it grounds to have concerns with respect to the prospect of recommendations on changes to the licensing regime and vertical integration, the banning of grandfathered commissions, further restrictions on life insurance commissions and constraints on clients paying for ongoing advice from superannuation accounts.
“We are very conscious that the outcome of the Royal Commission recommendations will place further pressure on the financial advice community at the same time that we are dealing with the implications of the Professional Standards reforms and the FASEA requirements,” the message said.
The AFA also cautioned that the Royal Commission final report would add to the difficult time being experienced by some of its members.
“We ask that in the spirit of the AFA community, you all keep an eye out for each other and respond when it is clear that someone you know is suffering,” the message said.
Comments
The final report from the RC will make very interesting reading. If constraints really are placed on clients paying for on-going advice from super a/cs - I can guarantee that it will result in more than 30% of advisers leaving the industry. More like 60%. If we fast forward 5 years from now - my crystal ball tells me that the number of advisers on FAR will total no more than 10K. They will be highly educated and the vast majority will be non-aligned as the large licensees no longer exist. The clientele will be those who can afford to pay a minimum of $10k pa for on-going advice with minimum investible assets of $1M. Those clients who are not able to afford the services of the afore mentioned highly educated adviser will need to source this from either their super fund (general advice) or AI. Don't believe me? Study the results from the UK RDR. As a result of FARSEA, RC, PC and all other vested interests with an agenda Australia will have an 'advice gap' similar to the UK. The number of retirees who will have to rely on the AP will rapidly increase as they have not been able to afford quality holistic advice. All in all, we will be a worse financial position as a country. Well done to all involved in this fiasco. Your short-sightedness and desire to be seen as doing something will exacerbate financial in-equality the likes of which has never been seen in this country. An old proverb comes to mind - 'ye shall reap what ye sow' (Galatians 6:7-9).
Agree with it all.
Many of the arguments put forward by the RC and PC and other so called experts have been simplistic/headline grabbing and do not consider the bigger picture, despite claiming to do so. In particular, the potential for advice fees being paid from by super ceasing has been flagged as it is seen as diminishing super balance retirement outcomes. Once again, a tunnel vision view by the RC and PC as it clearly ignore all of the associated benefits that good advice affords clients and enables them cost effective access to the advice many need when they may not have the financial means to pay for advice otherwise. Sadly, its highly likely that the result from the RC and PC reports will be that mainstream Australian's will no longer be able to afford the advice that many needs and in turn creating more questionable retirement outcomes than they claim exist at present.
When the dust settles and it becomes evident that the bigger picture was overlooked and things were taken too far, those responsible will simply blend quietly back into society or point the finger, blaming others. The UK financial services sector, post their reforms, is a perfect example of this!
How on earth it's considered appropriate to be able to take money from super to fund IVF or gastric band surgery, but not appropriate to pay for financial planning related to retirement is beyond me.
A recommendation to ban the payment of clearly disclosed and agreed advice fees from a clients superannuation fund in order to allow cost effective payment for advice, strategy and direction is utterly unacceptable.
The client should be allowed to choose a method of payment for advice that suits their budget and cash flow, whether that be from funds under advice or direct fees.
This dictatorial position to eliminate choice would be extremely detrimental to people who elect to have their advice fees paid from their invested monies. Financial advice fees paid from superannuation accounts can be funded via salary sacrifice contributions meaning the potential for tax effective payment of advice fees.
The enforced alternative would see people being forced to pay fees with after tax income with no tax deduction available.
This is simply insane and will eliminate a massive section of consumers who currently receive quality cost effective advice without having to commit a whole months mortgage payment to receive personal advice.
This is about the dumbest and most shortsighted proposal put forward.
Alternatively, it is a direct play to force people toward industry super funds who then will receive no personal advice.
This industry is imploding and it will not result in identifiable benefits to consumers at all on any level.
It will be highly destructive and the long term effect will be to increase the Govt's age pension costs (taxpayer) significantly.
Hear, hear. Can’t disagree with any of that. Pension clients will be OK, they can withdraw the funds to pay for it that way, high income accumulators will be fine as well, they have the cash flow. But what about those middling super clients who are struggling to pay a mortgage as it is? They’re cooked.
Agree with all comments. Most of us business owners could potentially push through the FASEA requirements to remain in the industry. But once you tell a client that you can't pay for advice fees via superannuation, most will simply choose not to pay as they cannot afford it from their cash flow. This will result in 75%+ of advisers leaving the industry, not 30%, as there is no point being in business when there is no money to be made.
In the last few years (bar the last few months) , dependent upon asset allocation and volume of invested funds, many clients have received healthy investment returns on their superannuation accounts.
It has not been unusual for a client with 400K to have received an annual net return of 40K plus in addition to their contributions.
If the annual adviser fee paid from the account was $3200 or .80% of FUM and paid on a monthly basis and the advice throughout the year included investment strategy and asset allocation reviews, estate planning advice surrounding nomination of beneficiaries, assessment of current or future insurance needs, salary sacrifice calculations and planning around non-concessional contributions due to sale of investment property and pre-retirement planning advice relating to Transition to Retirement strategy.........etc etc.......does this represent value to the client and why should that client be forced into having to pay the $3200 fee from after tax income, rather than paying the fee from the net earnings from their invested monies ??????
I want someone to tell me why this very typical example above is detrimental to this client's retirement planning as opposed to having to earn possibly $4500 plus in gross income in order to pay the advice fee.
No throw away lines, no Kelly O'Dwyer parrot fashion comments about enhanced consumer outcomes, just a plain, straight explanation as to why this is not appropriate.
Agent 86 - I agree with your comments. It will be interesting if anyone responds as I am sure the usual suspects don't understand some of the technical terms you have used for example, "salary sacrifice calculation" - that will confuse them.
Hi Agent 86, Hayne is a Judge so he will be looking for a breach of legal principles. In my estimation the RC will take the view that the trustees of retail superannuation funds have breached their fiduciary duty to the members of the fund. A trustee of a trust is in a fiduciary relationship with its members and therefore owes a fiduciary duty under both general law and the Corporations Act to act in the members best interest. Paying commissions and fees to financial advisers, especially aligned financial advisers, where no service is provided will be interpreted as a breach of the trustee’s fiduciary duty. However, the definition of what constitutes a service is debatable. What one person defines as a service would vary significantly to what another person defines. In addition, making a profit for the shareholders of a related party may also be interpreted as a breach of fiduciary duty by the trustee.
Industry Super Funds should not be left out of this because they have significant related party transactions occurring with no transparency. In addition, they spend large sums of money on advertising for political purposes and also make political donations. ASIC has never audited them which seems highly suspicious. Let’s hope that convenient oversight is addressed soon.
A financial adviser is in a fiduciary relationship with their client and must act in the client’s best interest. Your argument is valid from an adviser’s perspective because all your points are aligned with acting in the client’s best interest. However, I believe they are targeting trustee’s more than the advisers, however, like you, I know that the advice industry will collapse if clients are forced to pay from their pocket rather than their investment capital.
I believe the only way forward is to separate advice from product manufactures and allow the client and the adviser to enter into an ongoing advice fee contact where the clients have a choice to pay from their pocket or from their investments. If the adviser does not deliver on the ongoing advice contract, then the client can request a refund or seek remediation through AFCA. The key here is that a service contract exists between the client and the adviser and a conflict of interest is avoided because the adviser must be independent from the product.
If Hayne recommends that ongoing fee payments to financial advisers be banned from adviser associated super funds, then he will be providing industry super funds with a massive legal carve out that will allow them to take control of Australia’s superannuation savings. Maybe that what will happen. Who knows what goes on behind closed doors? However, if that does happen you will be able to infer what motive was from the beginning based on the consequences that occur.
Worst of all Shorten will be PM in May. He has already stated that he wants the dishonest superannuation trustees replaced with honest trustees. If he gets his way the unions will control all of Australia’s superannuation savings within the next three years.
Fabian Society motto “When I strike, I strike hard.” So who’s a Fabian then by chance? And which society propogates an agenda of nationalising the accumulated wealth of a nation?
Add new comment