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Planners urge ASIC to review asset-based fees

A Canberra-based adviser and chairman of the Independent Advisers Association of Australia, Daniel Brammall has urged the Australian Securities and Investments Commission (ASIC) to review its policy on asset-based fees in the context of the negative view expressed by the Royal Commission.

In a statement responding to the Royal Commissions findings, Brammall said the IFAAA specifically pointed to Commissioner Kenneth Hayne’s views on asset-based fees as being the industry’s dominant remuneration model and his statement that the model “appears to have been an attempt to replicate the revenue stream that flowed from a combination of upfront and trail commissions”.

“The IFAAA urges the ASIC to now heed the comments by Commissioner Hayne that relate to asset fees and declare them to be a conflict of interest,” Brammall said.

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Elsewhere in the IFAAA’s response to the Royal Commission, Brammall said the organisation applauded the recommendations made with respect to financial advice, particularly the need disclosure lack of independence to a potential client in advance.

“The IFAAA welcomes Commissioner Hayne’s recommendations,” he said. “They echo the IFAAA’s Gold Standard of Independence: no commissions, no asset fees, no links to product manufacturers. Without this Gold Standard, as a consumer you run the risk of not getting true advice, but rather a sales pitch masquerading as advice.”




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This is one of the great challenges we have in financial planning. Vocal minorities, like Daniel Brammall, are willing to burn large sections of our profession for their own self-interest. Hayne was harsh and bold with his recommendations, but he DID NOT recommend fees should be mandated as hourly rates or a fixed price. If Brammall will not accept the umpires decision, Money Management and other media outlets should call out this behaviour for what it is - selfish, unprofessional and damaging to the public perception of our profession

And in other news, the head of the Australian Lamb Organisation urges the government to declare that fruit and vegetables cause cancer. Because, it's not like the IFAAA are exactly impartial in this, are they? Why do we care what vested interest groups have to say about matters that are clearly designed to feather their own nests?

Asset based fees are just commissions by another name and should be made illegal. Client's should be charged a fully transparent fee for the services they recieve. No one would tolerate being charged for a litre of milk based on their net worth, so why should clients be charged enormously different fees for idential financial services?

Why aren't you raising your concerns with Fund Managers who charge % based fees, Industry Super funds who charge % based management fees, platforms that charge % based admin fees?
Oh and while you're at it, the ATO also charges you tax on how much you earn, % based taxation, the more you earn the more you pay.....

Micheal, I totally concur with your view and points made. I believe that self interested parties like Daniel are simply aiming to increase their own profile and therefore inflow of clients or AR numbers. Likewise Mark7 has a narrow opinion of right and wrong, depending solely on what he perceives it to be - hardly the professional approach that he likely spruiks to clients.

We charge F4S simply because for our client demographics and wealth level it simply makes sense for us to do so. However, just because we do, doesn't mean we have the right to judge or force others to do the same. I can think of a range of extremely sensible reasons why our model would not work in other circumstances.

In the end, if a tighter control is placed on what a client receives for the money paid (regardless of whatever form this may be), and that the clients are aware and satisfied beyond doubt of this, it should not be up to any other group or organisation to needlessly interfere.

I wonder how indignant Daniel and Mark7 would be if the reverse were being proposed?

If they lack the professional intelligence and appreciation of the commercial realities and variations of a capitalist democratic economy, then I would seriously call into question their own aptitude and right to be considered a true professional, and certainly not unbiased or conflict free as they most likely claim.

John - "lack the professional intelligence" and "seriously call into question (my) aptitude". Is it really necessary to devolve into ad hominem insults because you disagree with me? Is that mature, professional behaviour?

Please indicate how you've concluded that I'm "certainly not unbiased" or "conflict free", based on the fact that I disagree with you. You have no clue who I am or what I do.

Yeah. You re all exactly correct. Why are the fund managers able to charge asset based fees (basically commissions).

How is it fair for an Australian super member with a super balance of $10,000 to pay $66 pa in investment fees when another Australian super member in the exact same investment with a balance of $1,000,000 has to pay $6,600? Its the exact same product!

If advisers have to be fee for service why arent the super/investment funds forced to become fee for service too?

Yes; if where going to head down this path, is it pay for what you get or pay for how long it took? Why can a super fund charge more for a bigger balance; why can my stock broker charge more for a larger transaction; why can a fund manager charge more for a bigger balance; why can a lawyer charge more for a bigger payout; why can a fisherman charge more for a bigger fish; why can netflix still charge me if i dont watch it for a month; why can telstra still charge me if i dont use my data allowance; why AFR charge me if i dont log on and use my online subscription; why do none of these organisations remind me what i pay them, how many times i used their service, and seek confirmation that payment for the service should continue??? I'm struggling to understand who we're protecting and what we're protecting them from. Are the people who pay for financial services different from the people who use all these other such services? I would assume it's the same person. If we're protecting the consumer from poor practise, shouldn't they be protected from everyone who's using this poor practise? If this is poor business practise, rule it out across the board, every business, every industry, every service. How can be unacceptable in one are, but OK in all the others?

Ryan, it's because we are planners and advisers and we're just a bunch of dogs who can be kicked by any particular special interest group or politician who fancies making a name for themselves. We're not expected to complain but should just be happy that the government hasn't legislated the industry out of existence (which may still happen, witness the push for the Future Fund to manage superannuation; one day we'll end up like NZ). I personally regret ever entering this profession and if I had my time over (and my 12 years of graduate and post-graduate study) I would have made a career in an industry which (thanks to the media and politicians) has higher standing than financial advice, like selling used cars.

Nicely put Steve. I concur.

huh?

Why is an asset-based fee not fully transparent? Our clients know exactly what we charge them - they see it 4 times a year in their quarterly report, every month in their bank statement, one a year in their tax report and once a year in the FDS, and twice a year when we meet for a 6 monthly review. So that's 20 times a year where our clients see exactly what we charged them. Is that not transparent? It's simply not possible for me to tell my clients any more often how much they have paid us. As it is the vast majority are baffled by how many times we prostrate ourselves before them and point out how much they are paying us.

Mark7, I work with accumulators and charge an asset based fee until a certain threshold is reached at which point they switch to a flat fee. The threshold I have determined is the point I can operate at a profitable level, before clients reach that point I am running at breakeven or a loss, that's my choice to operate that way because of the type of client I work with. Where's the issue with asset based fees in this context? You're telling me I shouldn't be able to charge like that, I should charge the true cost right from the start of the relationship, in which case a lot of the relationships won't even begin because the client will baulk at the fee.

A friend of mine runs an investment only business, no risk, no strategic advice, just portfolio management with a minimum portfolio value of $1m to be considered a client. He routinely gets asked by those clients whether his 1.0% fee is going to be sufficient to provide the service they're after. They're sophisticated people who choose to pay that money for his service - why should someone tell him he can't charge that way.

Response?

Mark7, anyone will be happy to pay more for 2 litres of milk than they'll pay for one. As a closer comparison, anyone will pay more for a 4kg fish than they will a 2kg fish (of the same species - and there are many, so a kilo of fish A is not the same as a kilo of fish B), yet why should the fisherman be paid more just because a bigger fish fell into his net? It doesn't take him any longer to catch a bigger fish; it doesn't cost him any more to catch a bigger fish. Mark7, i will tell you why some pays more for a bigger fish, regardless of how much time it took to catch that fish - is the person who's buying the fish gets more fish. They're not paying for the time to catch the fish, they're paying for how much fish ends up on their table - how much benefit they receive. A client with more money, receives more benefit / value / dollars / return from the amount of time that is put in. Some fish return the fisherman less than he needs to sustain a business, and some return more - what's important though, is the clients gets the amount of fish that they pay for, they know how much they're paying for it, they're happy with the quality of the fish, and they're willing to pay, and continue to pay, that amount of money for that amount of fish on their table. It's not that hard, every other industry has the opportunity to charge for what they deliver, and are judged on the amount of that charge by the person who has agreed to pay it.

Be careful, in breaking news the FPA (who is run by are mostly independent Advisers), suddenly declare that Insurance commissions must go because they are conflicted too, their secret alliance with Industry Super funds means the FPA is actually conflicted, on one hand their public policy position is that insurance commissions are ok for members, but behind the scenes they are saying we will get rid of them to support their conflict arrangements with Industry Super funds. Next will be asset based fees and scrutiny on how much you charge.

People need to be careful what they wish for. Today they are calling for the Government to ban one type of voluntary economic transaction, but what happens when at some point in the future someone tries to get the Government to curtail them. Where do you draw the line. The simple fact is Government should not be getting involved in the private economic transactions between two consenting adults.

Brammal is entirely predictable and always has been.
He is a born again planner like all of his loyal band of followers who have previously in a former life been more than comfortable in being remunerated via insurance commission, asset based fees, and grandfathered commissions and now bleat on about the righteous way to do things because it suits their ideology and current business model.
Its like an evangelical march of people who have discovered their ideological light and are prepared to waste everyone who does not subscribe to their ways or beliefs despite the vast majority of those people doing the right thing by their clients and offering excellent advice and service.

The IFAAA have only 59 practicing members Australia wide and want to invoke wholesale change which will effect the vast majority of advisers across the country in order to push their own ideology.
How conceited and self indulgent are this very small group ?
It is entirely fine for them to run their businesses in the manner they wish, but to continually push to disrupt the majority and to have the audacity to expect that all should subscribe to their model is blatantly self serving.

The problem with charging only flat fees is that it is difficult to price in risk. The reality is that there is greater risk in advising on a larger investment and charging asset-based fees is a more accurate way of pricing this risk in.

This is the reason we are so weak, as a industry. Until we stop this infighting we will all be walked over. Dosent matter if you are a bank planner, non aligned, or a member of the IFAAA, as long as you are putting your clients first and they are happy with your service who cares how you charge? The clients will decide, its not up to anyone else! All these so called experts saying oh no you cant pay that way, you need to pay this way, well to them I say get your noses out of our business. Let the clients pay how they want to. There is enough business for everyone without trying to backstab eachother to make it look like one is better than the other one. If you guys want a strong industry, have to work together. Should all join the UFAA, this can be a common goal, to build this lobby group up to the level that they have to listen to us. Stay with the AFA and FPA as well if you want, but dont miss this chance to come together! Put the holier than though crap away and work with your peers!

what risk exactly? I'm not saying it's wrong, but also not sure it's a myth to support the % argument. If you give good compliant advice what's the difference in risk between a 200K client and a 2M one? The argument is the 2M one will be more litigious and afford it. But no win no fee lawyers arguably make the smaller clients just as dangerous.

I'm pretty sure that No Win No Fee lawyer will be paid a percentage of the win. Does that mean they'll be paid more if they sue for more? Sure it doesn't take any longer to sue for $1,000,000 than it does for $100?

Phil, mistakes can still happen despite compliant advice and best intentions. A $2M client is likely to suffer a more significant financial loss than a $200K client in the event of the same adviser mistake. If you understand anything about FOS determinations, it is based on returning the client to the same position they were in had they not proceeded with advice so I don't buy for 1 second your argument that they would represent the same financial risk.

ok thanks makes sense

There's not just the risk of advise either, it needs to be implemented. Many practises will have a team of 'people' (people make mistakes) that are likely to get involved in the execution - there's probably a higher risk of error in execution than there is in non-complaint or poor advice.

I understand. The problem is ASIC hates them and want them gone or at least that's as I understand there agenda.

I'm not sure that it's ASIC's own agenda; i would suggest it's more the agenda of the Banks and Industry Super funds - they'll gain the most; the politicians and ASIC just follow. If there were no advisers (credit or financial), then these big institutions could rely solely on their marketing department to extract as much as they can from a very uninformed, irrational & emotional base of clients with no access to expertise. Noam Chomsky puts it very clearly, look him up on You Tube.

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