The reality of advisers discarding C-grade clients
At the same time as the Minister and the Australian Securities and Investments Commission (ASIC) talk about making advice more affordable, advisers have been turning away many low-value clients while some existing clients have recently been receiving notification of the need to pay higher fees.
While the ending of grandfathering was a known quantity when it occurred at the end of 2020, many clients are only now receiving notification of the implications while advisers have admitted to Money Management that they are turning away new clients who do not meet criteria in terms of assets and investable income.
Association of Financial Advisers (AFA) acting chief executive, Phil Anderson, has confirmed the phenomenon and said that the long-standing threats by financial advisers that they would be retaining their A and B clients while dropping their C and D clients had become a reality.
One adviser said that, in many instances, it depended on the profile of the client and the products and platforms via which they were invested, but he calculated that he had already offloaded close to 200 clients.
“We are getting more referrals, but we now actively screen them for ones that don’t create a lot of unnecessary workload,” he said while providing the example of someone earning over $150,000 a year with between $1 million and $1.5 million in assets.
The adviser said that often the decision came down to the pragmatic assessment of which particular product a client was in, how much was being generated in fees and the degree to which this fee generation was being offset by regulatory administration.
“I have some clients who pay me $5,000 a year and create virtually zero workload, while I have others who have paid me $500 a year and bury me in red-tape,” the adviser said pointing to the impact of the legislation generated by the Royal Commission.
Former dealer group head, Paul Harding-Davis, said that he was well aware of some advisers turning clients away largely as a result of the end of grandfathering and, in many instances, because of the Life Insurance Framework and its impact on commissions.
“The advisers tell me its just not worth it with respect to some clients,” he said.
The AFA’s Anderson said that for many advisers on-going fee arrangements had not worked and that many were now offering to help lower value clients by way of transaction-only arrangements.
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