FPA submission laments high cost of FOFA

14 June 2017

The Federal Government needs to conduct an audit of the Future of Financial Advice (FOFA) changes to see whether they have appropriately measured up given the high costs involved, according to the Financial Planning Association (FPA).

The FPA has used a submission to the Treasury’s FOFA post-implementation review, to point to the high costs involved in implementing the changes to the financial advice industry and to question whether the central objectives have been achieves.

“The objectives of the FOFA reforms were to ‘improve the trust and confidence of Australian retail investors in the financial services sector and ensure the availability, accessibility and affordability of high quality financial advice’,” the FPA submission said “However, the costs associated with the implementation and ongoing compliance with many of the FOFA measures have impacted the costs involved in providing advice and barriers to business growth resulting in higher advice fees for clients and restricted service offerings.”

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It is against this background, the FPA has recommended that the Government conduct research to measure and qualify if the FOFA reforms met its objective of improving the quality of advice.

In doing so, it said such a move had to include “an analysis of pre-FOFA research against the post-FOFA research findings, and should examine quality of advice, cost of advice for consumers, changes in types of advice available to consumers and incidences of compliance failures and regulator action”.

One of the issues which most angered advisers prior to the implementation of FOFA – opt-in – continues to be an issue, according to the FPA, with its submission stating: “Feedback from members reveals that the opt-in provisions have proven to be more onerous than what was first thought. The reality of implementation on some small business and large impact of time and efficiency has cost a lot of money on all levels”.

Elsewhere in its submission, the FPA pointed to the business impacts of the FOFA ban on up-front and trailing commissions for individual and group risk insurance within superannuation, claiming the changes resulted in a significant reduction in income with some small businesses losing between 15 per cent and 30 per cent of revenue.

It said this was allied with a significant increase in compliance costs and, in some cases, an end to services being offered because clients were not prepared to pay a flat fee for advice.

Looking at client costs in this area, the FPA submission said FOFA had added around $5,000 to the cost of training, between $5,000 and $10,000 to implement new remuneration systems and IT changes of around $5,000.

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Important Message-Disclaimer: Theses are the opinions of a body that gets most of it's membership fees from AMP and the large banks and represent the thoughts and views of these product manufacturers. It's important to note whether they are actually right or wrong that the opinions expressed above do not represent the wider adviser community and really just represent these product manufacturers view of the world.

Do you run a financial planning business Yogi? if you do then you shouldn't care who's making these comments but wholeheartedly agree with them. Everyone, including the current Government, knows that the Opt In, FDS and Best Interest Duty elements of FOFA were purely for political point scoring and to keep the consumer groups at bay. They also know that there is zero benefit to consumers but higher cost to business, they wanted to be seem to punish the industry because of the actions of a small percentage of bad apples. At least the FPA is trying to advocate for the advice industry, we need to have some sort of voice.

Couldn't agree more. I think the true costs and impacts are yet to be felt. Many advisers have worked harder to try and insulate their clients from the costs but I think that's going to change shortly or, services will again be reduced. It's no wonder vertical integration is the new 'go to' strategy - simply advisers trying to pick up lost margin, it's hard to blame them.

Phil the call for submission papers into the post FoFA review specifically stated that they can appreciate some advisers will leave the industry and there will be job losses as a result of FoFa but this is not evidence that FoFA has failed, they said. The present Government is clearly not listening to the FPA and the previous Government had it's own conflicted agenda in it's implementation. I believe they are not listening because the voice of advisers being the AFA and the FPA are conflicted. As advisers we've gone through reforms but these bodies are living in the 80's.

I agree FoFa has failed. Specifically Opt in has cost jobs, driven up the price of advice and ruled out access for all Australians to great advisers. Perhaps Brett if the FPA were not so conflicted we would not be facing Opt In at all. Advisers hate conflicted remuneration yet here is the very organization claiming to represent advisers getting paid conflicted remuneration via substantial payments via the banks, and AMP's. The Government is not listening to the FPA as a result of these payments and it's this very relationship that has failed us. Explains why and is just one of the reasons why Labor completely ignored the FPA. Why would ASIC need to appoint a separate body of advisers (FACC) if the FPA were representative of all advisers.

So to be conflict free, you want the FPA to not accept membership fees from AMP or bank advisers, or paid on behalf of them? There'd be no association left, just not practical.

No I'm saying, Bank & AMP planners should pay the same membership fee as all planners equally and for them to scrap the professional partners program. AMP, IOOF and Bank planners as an example pay a discounted membership fee as a result of belonging to their professional partners program. All members of the FPA should pay the same amount regardless of employer otherwise the membership base will become distorted. I believe this has already become to happen. Both the FPA and AFA have a professional partners membership program where product manufactures pay a substantial membership fee. Why, would the FPA listen to the voice of one lone CBA planner when there getting a lump sum payment from the CBA itself? Why was both the AFA & FPA silent during recent CBA scandals? The same scandals that has resulted in annual adviser exams. Why would a Labor government listen to the FPA under this arrangement? My point is that the Government is no longer listening to the FPA or AFA because of these conflicted remuneration payments. Why is it that the FPA can get $60,000 from the CBA but you as an adviser can't as it's perceived as a conflicted payment. There membership structure is out of touch and the Government is no longer listening to them. As a politician how would react if the Australian Medical Association came to you claiming to represent Doctors when there major source of funding came from Drug Manufacturers?

I wasn't aware of the financial arrangements of the Professional Partner program - if as you say I agree, that is not acceptable under any terms.

If all Superannuation statements explicitly state "Fees paid to your Financial Adviser $x" then what is the point of a Fee Disclosure Statement? I am not sure all Super funds do this, but it isn't hard for them to implement it. It's a much more efficient way to provide that information to a client. If anything, FDS cause client confusion as unnecessary paperwork. Opt-in also needs to be addressed, as again its an inefficient piece of compliance. Surely if the consumer is aware of the fees they are paying to an Adviser, and can weigh up in their mind whether they are getting the value they perceive, they will make the choice to switch off advice fees themselves. ... a bit like they would do with pretty much any other transaction taking place in their lives. Eg. You don't perceive value in your Foxtel connection as they show a lot of repeats, so the consumer calls up and cancels it. We seem to want to legislate compliance on the assumption everyone has the IQ of a 6 year old.

Perhaps Claude it is not the clients with the low IQ's..... Maybe the people making the regulations do not understand

Some planners don't want Fee Disclosure Statements because they know they will have trouble justifying their fees. For example, all the planners that are charging a FUM fee as their 'ongoing service'. This is ridiculous. People are already paying a fee to the fund manager and then a planner comes in and adds another 1% to 'ongoing advice'. Why is it not 'fixed' fee or at least a cap on the amount. At least in the old days trail was set pretty much across all the funds. I have clients that have come to see me who have been paying 2% 'advice' FUM fees set up after FOFA. Come on planners. And this is 'new' guys doing this. The old planners are not all crooks. There are still plenty of new ones with degrees, CFP.

Again I agree, saw 2 'opposition' plans in the past month. One institution advice - 420K rollover from an industry fund to a Wrap Super - no getting into best interests on this point etc - but 4K plan fee, 1.8% Implementation fee - why is it a % ( 8K) + Risk commissions full odds another 8K. My question is simply is this fair pricing for the work involved? The rollover is applications, rollover notice, monitoring of transaction, placement of some investments - 8k? No wonder consumers don't take up advice. Oh and yes, 1% per annum ongoing.

You guys are getting side tracked. This is about the deliverance of FoFA, not a business decision about how much they charge in fees. Any business can charge whatever fee they like, its their decision. The consumer will decide whether or not they want to pay for it. I think the argument, is that if key pieces of information from FoFA, such as a FDS can be delivered in a more efficient manner eg. Fee disclosure explicitly stated on a Super Fund statement. We are past the days of "hiding fees" within product, which is what you are suggesting.

No Claude, I think it is about FOFA. FOFA was supposed to increase quality of advice. It is failing. I think there should be FDS that are so simple and no embedded within a super statement that no client ever reads. I think the planner is charging a fee and the client should know exactly what that is in a dollar amount each year. A one page letter to the clients to state the fees is good. Planners want the fee on super funds as yet another 'hidden' table that no one sees. Try even now working out exactly what a client on a current platform is paying their planner. FOFA has failed because it has not made advice higher in quality or more accessible. It has made it easier for FUM stealing planners to now charge over 1% for their advice.

Paul stop generalising, planners want this on super funds , planners want that, how do you know what we want, have you done a questionairre, or just assuming to make your points? I dont care how fees are disclosed, end of story, I just dont like replication and time wasting. FOFA has failed as it was never about the consumers, read the hansard from around that time if you want to get the real story. Give clients more credit, this 1.00% adviser fee may be offsetting tax payable in the fund, so maybe its actually working for the client, its depending on their personal situation isnt it, just stop assuming, start researching.

Absolute rubbish Paul. FOFA has made advice higher quality, if you are complying with the Best Interest Duty there's no way it's not high quality advice. The unfortunate side effect is that advice is now more expensive, but everyone, including the Government new this would be the case. How can you increase the level of compliance, which basically increases the time required to produce advice, without a corresponding increase in cost.

You're working on the assumption that the general public are uneducated buffoons who couldn't read a simple table that says Fees Paid to Adviser $X.

You talk about FUM stealing planners, a big percentage of planners charge a percentage based fee that is capped e.g. 1.0% until you are paying $2,500 p.a. The cap is generally set at a level that is fair to client but allows the Adviser a profit margin as well, any client who is not paying at the cap level would be costing that planner money. The planner accepts this because they hope to grow with the client to the point that they become profitable.

The old days of hidden commissions and dodgy planners are gone mate, nothing is hidden any more.

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