Licensee boss says FSC's proposals are marginal, at best

The Financial Services Council’s (FSC’s) green paper proposals to reduce the cost of financial advice will produce marginal improvements, at best, according to the chief executive of major licensee Countplus and former Financial Planning Association (FPA) chairman, Matthew Rowe.

After examining the FSC’s proposals, Rowe said he believed it was important to recognise that the FSC green paper was referring to fees increasing to clients at the same time as failing to look at the total cost to clients and the total cost to serve those clients.

“With grandfathered commissions now falling away as at 31 December, 2020, we are seeing in some cases the total cost to clients falling – the engaged professional fee component might have increased but this has been offset in some cases by the ending of commissions and rebates,” Rowe said.

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“Frankly, clients will not pay a fee if they don’t see value – so it is not the amount of the fee that is an issue for financial advisers – it is whether they are financially sustainable and profitable and this comes to the total cost to serve relative to what they can charge.”

“We know that a number of business models reliant on commission and product rebate structures are under financial pressure – market forces will determine what clients will pay for the service they want,” Rowe said.

He said that with the total cost to serve, the removal of the safe harbour provision cited by the FSC would not have a material impact on economics.

“From an adviser perspective removing these explicit requirements will reduce the detailed evidentiary requirements relating to documenting compliance with the safe harbour provisions. However, financial advisers would still need to ensure there is a reasonable basis for the advice (via fact finding/know your client) and ensure that the advice given is appropriate, meets the client’s needs and objectives and places the client in a better position,” he said.

“The need to document, in great detail in some cases, the processes that lead to the recommendation; the alternatives considered and discounted; how potential conflicts have been addressed and resolved; and the other ancillary matters required to be considered would be reduced and my estimate is one hour per client total cost to serve,” Rowe said.

He said that given that it was taking between 12 and 15 hours from initial discovery to a Statement of Advice (SOA) being issued, a one-hour saving was marginal.

Nonetheless, the SOA would remain a key document upon which to base an assessment of the advice, rather than by reference to detailed file notes and other documentation that is currently obtained and retained purely for the purposes of evidencing compliance with the safe harbour provisions.

Rowe said the real time cost savings to advisers would come via innovation - from their overall review of their advice process and systems.

“When there were five key players that dominated 80% of the adviser market there was little innovation in advice as the focus was on product distribution. The issue with product manufacturers is they think the answer to every problem is to sell more product,” he said. “The FSC represents product manufacturers.”

Rowe said that licensees were service providers, not product distributors.

“The safe harbour provision is generally inward focused, in terms of adviser regulatory compliance, rather than being client-centric requirements that impact the quality of the advice provided.  In fact, it is common for audits/advice reviews to identify many breaches or concerns re compliance with the safe harbour provisions, but the overall assessment is that the advice is appropriate; meets the client’s stated needs and objectives; and does place the client in a better position.”




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Comments

Comments

Getting rid of Safe Harbour compliance bureaucracy is one of the the few sensible things the FSC has suggested. Yet Rowe opposes it.

I'm starting to understand why the FPA failed to reform and was never taken seriously as a lobbyist under Rowe's presidency, and why FASEA was such a mess under Rowe's directorship.

The FSC should not even be at the table. They drove the knife in with LIF support. And now they want to do the same with advice to pave the way for the banks to re-enter advice in a few years. If the pollies can't see this ( and they can't ) we are truly gone here.

Well said Matthew Rowe. To suggest the the #1 impact on the cost of advice is the SOA and meeting BID is simply not the case. There are a host of inputs such as PI, Licensing costs, premises, staff...the list goes on! The Capacity Gap will not be solved without scaled access to safe, compliant & easily understood advice solutions. For many people access to simple advice is what they need. The implication that "simple is bad" is really completely wrong - if viewed through the everyday customer lens then advice needs are indeed simpler - more life event and goals based - perfect for Digital Advice:
a. Savings goals
b. Buy a house
c. Getting the kids through school
d. Retire well
e. Protecting me and my family.

M Rowe def has a vision for his advice landscape of the future but I don't think his math in this case is accurate. I don't think in most cases an SOA is a functional, future relevant tool to deliver advice and takes more than 1 hour off the top...i think removal or simplification of the safe harbour and how that is supposed to be completed would substantially reduce the cost to serve and thus the costs applied...but the consumer voice is still missing from the design conversation and will ultimately be what decides...

Consumers have already decided. They have decided professional advice is too complex and expensive, so they will have to rely on advertising and PR for advice instead. Consequently they are piling into real estate, union super funds, junk insurance, and "too good to be true" products like Mayfair.

Shame on ASIC. Shame on Choice. Shame on LNP & ALP governments. You have used the excuse of a minority of bad advisers, to decimate professional advice and promote your own biases and vested interests instead. You have betrayed consumers terribly.

Dealer Group Boss opposes any reform to compliance, as it's what every licensee is built on. Of course he opposes anything that may result in his Dealer Group being impacted. In the event of reform, if Dealer Groups are no longer responsible for compliance what purpose do they have? Self serving.

Compliance is also something dealer groups use as a weapon to impose their own conflicted agenda on advisers.

Dealer groups must go. Individual licensing works perfectly well for doctors, lawyer & accountants. There's no reason it shouldn't for financial advisers. Imagine if pharmaceutical companies were responsible for licensing doctors, and had the power to issue a contrived "compliance breach" if the doctor didn't prescribe enough of their drug? That is the sort of system most financial advisers operate under.

This is where Grandfathered commission served it purpose, that it was feasable to service smaller value clients , all that is happening is that these clients are now orphan clients

This is where Grandfathered commission served it purpose, that it was feasable to service smaller value clients , all that is happening is that these clients are now orphan clients

This story has 45 lines. It only needed one......"The FSC represents product manufacturers". Lets be clear now. The FSC's entire existence is to flog more product. No more no less. Their green paper belongs in the rest room.

There needs to be a best interest duty as a fiduciary duty , but the safe harbour steps are an expensive lunacy, prescribing HOW this should be done is costing consumers a god damn version, because the HOW is a pile of file notes on a server that a client never sees, they will never see value in that process.

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