The Australian Prudential Regulation Authority (APRA) has been asked whether it is aware that a situation is being created where financial advisers will not take on clients unless they have investible assets of more than $1 million.
The regulator was put on the spot about the rising costs of financial services regulation by NSW Liberal back-bencher, Jason Falinski who asked whether that fact should worry the regulator.
“Does it not worry you as an organisation that is meant to ensure the prudential standards of our financial institutions that investors are making decisions on good advice, but we are creating a situation where advisers will not take clients on unless they have $1 million in investible assets because of things like Government regulators increasing their fees and charges by 58%,” Falinski asked during a hearing of the House of Representatives Standing Committee on Economics.
APRA deputy chair, Helen Rowell described Falinski’s question as being “somewhat out of our mandate”.
However, the backbencher put it in the context of financial advice being provided by industry superannuation funds.
“Given that industry super funds are starting to give or are regularly giving financial advice to their members have you spoken to the Australian Securities and investments Commission (ASIC) about the fact that they [the industry funds] continuously describe themselves as providing independent advice?” he asked.
Rowell said that APRA hadn’t had that specific conversation with ASIC.
“I think those measures of transparency and disclosure are primarily for ASIC but we have certainly had conversations with ASIC around the nature of the advice models in the superannuation sector and some of the complexities and issues that can arise in relation to that,” she said.
Comments
Yes Minister.
About time someone is giving the regulators a hard time, especially in this context.
He is 100% correct; while our minimum ongoing fee is $4500 pa, we don't really encourage new clients to come onboard unless they're well & truly closer to that $1mill figure, it is just not worth it financially especially for all the risks involved.
Falinski comes from a FP background, so it is great to see him pushing back against union industry super.
'I know nooooothiiiiig"
'I see Noooothiiiing'
They are not only shunning uneconomical clients they are shunning the industry. I am a MAF qualified FASEA compliant finance professional with 25 years experience in a Big 4 bank wealth manager and a small boutique practice. I make more money outside of financial advice than I would in. Why should I expose myself to the risk in the industry for rubbish returns? I can be a money coach ;). I can make referrals;) No advice given of course. I can suggest a mortgage provider without a licence - no advice given of course, just a referral. I can educate you on how to minimise tax - no advice given of course, it is just a referral to an Accountant. I also work for government now. ;) And that is where most of my income comes from - government gigs. Welcome to Socialist Australia where some are more equal than others.
Geez Jason, I appreciate your intentions, but please get your facts straight.
- Most advisers don't price their services based on "investable assets" any more. That is a very out of date concept. Pricing is based on service complexity. Sometimes it won't involve investments at all. Professional financial advice is much broader than that. Consumers who can't afford to pay at least $3K+ from their after tax savings are the ones unable to access ongoing professional advice.
- Costs have risen due to massive increases in regulatory complexity. Direct regulatory fees are just a small part of that equation. Most of the additional costs come from the time and resources involved in dealing with multiple layers of forms and processes and documentation that do nothing to enhance consumer protection.
- APRA is right to say these issues are out of their mandate. APRA is one of the few financial regulators not imposing complex, bureaucratic regulation on financial advisers. The real culprits are ASIC, AFCA, TPB and FASEA (soon to be Treasury).
- The biggest culprit of all however is your parliamentary colleague Jane Hume. As minister responsible for this mess, she is completely aware of the issues. Yet all she does about it is laugh.
While I agree with a lot of what you say, as per Rob's comment, regardless of the 'service complexity' if a client doesn't have much wealth they aren't likely to want to pay your $3k figure.
I would also suggest, if you don't like Jason F's terminology then write to him directly as he is quite approachable - especially rather than posting 'corrections' in this forum that do nothing to further our cause - at least he is one politician who is attempting to assist us, so rather than bagging or correcting him, be thankful he is making an attempt.
One would hope that any politician, regulator, or association who is serious about understanding the real issues of this industry would be paying close attention to online forums like this one. It is one of the few places they are likely to get the truth. Formal responses are ultimately never confidential, and therefore leave the author open to (even more) persecution from the biased organisations they are complaining about.
I suggest you take a look at the Netwealth website for some recent research they did on "emerging affluent" consumers. These are people with professional jobs, above average salaries, reasonable complexity of requirements, but not yet significant assets other than their home. They are the sort of people who can and will pay fees, without significant investable assets.
but, there are above average salaries and then there are "above average salaries". Even people on above average salaries cannot even pay for financial advice now. Oh and sending them to the in-house Mortgage Broker and getting a trailing commission is not "paying" for financial advice.
Economics 101 suggests that Advisers can only afford to take on clients with capacity and willingness to pay commercially viable professional fees. Anything less is loss leading. Listen to the Meerkat.....SIMPLE !!!
FASEA makes us assess whether or own fee is subjectively “good value” for the client. The only objective yardstick we have is the clients relation to the clients net assets or their income. Any subjectively will mean you always lose to a lawyer or regulator. It’s risky to charge adequate fees to someone with very little assets, even if they have the income to support it and the need. You can just imagine a regulator saying “you have charged 50% of the clients super contributions” or something of the like. So despite AUM fees dying out, the size of investable assets will remain a hurdle because it is objective and easily verifiable when dealing in our cesspit regime. So to ensure I never have to deal with this BS rigmarole I certainly won’t even be taking an introductory meeting if there is less than $1m. Government solely to blame here, don’t even care anymore if I only service the rich, industry super can have the rest of them, which is great because they’re “independent”
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