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.

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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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Dear LNP, MIA Jane Hume & ASIC, you must be so proud to see your ever increasing laws, regs, red tape costs and Canberra bubble bureaucratic rubbish make advice ever more unaffordable for 85% of Australians.
STRANGULATION BY BS REGULATIONS is the only thing you have delivered.
What a sad joke these bureaucrats are.

Been doing this now for 2 years - either letting go entirely, passing onto another smaller firm or else rolling into an industry fund and letting them fend for themselves.

Most are lovely people and understand the commercial reality.

This is pretty much what ISA / union funds and ASIC want us to do with every single client - for us to become extinct and union super wins the big prize of the entire nation's retirement wealth.

Thank god the LNP, for all their faults and being too weak to stop this shit from happening, are at least now putting the union super funds & ASIC under the blow torch - though I notice not many of the lefty media outlets are giving it the minute by minute coverage thet they gave the farcical royal commission led by that doddery clown Haynes.

Me too, but don’t do them the favour of moving over to an industry fund. At least find a decent, cheap retail fund with a very capable SMA on their menu. A few core menus offer active for about 0.6-0.7% all in.

No-one could have possibly seen this coming!!

We have had to deliver the bad news to most of the clients that we are cutting off. We still have some to go, it's a massive job. More work for no pay!

It has been especially hard as some have been with us and really appreciated our help for more than 15 years. Some were devastated by the call from me, they asked where to go? The only realistic option was Centrelink and yes I did feel bad offering that as their only alternative.

None of the clients were on grandfathered commissions BTW, we've been fee for service for almost 20 years. The reason we cut them was not because of their low fees, it was the compliance risk associated with continuing to help them. This is of course not limited to the latest rounds of obligations under FARSEA of "taking reasonable to steps" to obtain all relevant information and "consider all the implications" when someone just wants a bit of C/Link advice.

The other reason we cut the book was the ridiculous amount of red tape associated with maintaining such small clients. The fact that we never made any money from them due to their low fees never bothered me. It when ASIC/FARSEA/TPB/TREASURY Cabal of Idiots piled on the costs with ridiculous layers of red tape we had to say enough is enough.

Good luck ASIC with your review, by the time you lazy lot of left wing public servants get around to extracting a digit and completing the review, no-one will have low value clients left on their books and no-one will take them in as new clients.

We are struggling already with the amount of new business from higher net worth/income earners. Where have all the advisers gone I wonder???

We will have no time despite the fact helping people is what we do and the fact that I had some nice people who I was willing to help despite not making any money from them.

Unfortunately they won't get a look in in the future.

Bravo The Cabal of Idiots.

The other place to send orphaned clients is their local federal member and all 12 of their state's senators. All political parties contributed to the current mess, and all should be held accountable.

While orphaned clients may not get an immediate solution, it will be a great opportunity for them to release their frustration and anger against those who caused the problem. Who knows, it may even lead to some improvements if enough politicians start hearing first hand about the damage they have caused to voters.

Totally agree.
When speaking to ASIC the other week about the outrageous 160% Adviser Levy Increases and massive compliance increases.
I said we would be Advising clients we have let go to contact ASIC and Pollies directly.
These bureaucratic clowns have no reality of Real people and should contacted by these people.

In keeping with the 80/20 rule whereby 20% of your clients generate 80% of your profit we also orphaned our masses of commercially unviable low fee clients who tied us up in red tape and so we now only service the commercially viable and have as a result become more profitable. Politicians, Public Servants, ASIC, APRA, Commissioner Hayne and others.......we told you this would happen but you didn't listen. Therefore to remain commercially viable we now only serve the wealthy or the middle class who recognise our value and are willing and able to pay for our service and advice. The rest who need us most are sadly relegated to "Cattle Class".

A great article Mike but probably at least 2 years too late. We've been offloading clients at around the same rate as mentioned above, starting back early 2020. What worked for decades just isn't working anymore and we will focus on our higher net wealth engaged clients and also retain ones that have been just overall great clients. It's not always about the dollars, but the realities of all our compliance and operating costs have lead to some heart breaking choices. I don't think the people who were instrumental to bring these changes to our industry considered the consequences of their actions. Remember, annual opt in is just around the corner. I believe this will get worse.

So it seems everyone is now going to focus on the high end of the market, high net worth clients. Economics of this is that there will be higher competition and then eventually drive price down. So you have less compliance (which is the the initial risk return analysis) with now lower fees because of competition. Resulting in lower revenue.....something is not right about this strategy or rather the industry that "they" have created.

You forget that the supply of Financial Planners will diminish, so it will be less Planners servicing the same amount of higher net worth clients. Those lesser value clients will be the ones that are shed and have to fend for themselves.

there will be plenty of mayfair 102, 103, 104, 105, 106, 107 and melissa caddick's who will come out of the woodwork to assist these lesser value clients.

and of course robo advice, so all is well, just keep saying that, all is well and it will be.

straya mate, always on the up and up until it aint'

Well that hasn't happened yet. We are being inundated with "good business''. Several this calendar year alone was old adviser retired and didn't like the uni grad they got or needed a move anyway.

Our fees will be going up and I'm not really worried about lack of new business. We have enough ongoing anyway, all staff are becoming overworked with what we have.

Good for us, bad for the country, terrible for the prospective clients that miss out.

I can assure you of one thing; Jane Hume is not listening. Birmingham is not listening. If you can actually sit with one of these senators you will find they have never used a financial planner and have no understanding of the impact of FDS, LIF, Opt in, annual renewals etc, etc. They dont care. They care about one thing: getting re-elected!! all the lip service is just that. Financial advisers are despised by government, regulators and especially the ISFs and Labor. You will find no comfort from them. Do what you must to be commercially viable, do your best for the clients you serve but make sure you make provisions from your revenue because the value of the business may only be on a yearly basis. Capital value diminished by communist regulators and clueless politicians.

Diito here. Just can't keep looking after low value clients. Most are lovely people i have know for 20 years but just can't keep a file running these days for some of the income that was coming through. Plus as a sole practitioner i am looking to sell the business rather than finish my degree at age 64 and buyers aren't interested in non profitable clients, it reduces the sale price. So thanks Scummo!

The unfortunate outcome of Hayne2, FASEA, 160% ASIC fee increases & LIF, while the Minister for Superannuation hob-nobs it on Budget night with wholesale sophisticated investors who are totally unaffected by this retail red tape she has helped impose on low-income families. 8 long years of a failed Liberal Govt in relation to advice policy. Totally disgusted

Makes me wonder what the FPA thinks about dumping all these small clients. They must only be representing the intra-fund advisers & wholesale client advisers these days, given their total silence on the regulatory red tape the FPA has given the green light to, in particular Hayne2 & LIF.

the FPA doesn't care. why would they, as long as they have 5000 members paying their membership fees they will just keep going with one policy position after another. it's so funny, the government just ignores anything the FPA says anyway.

not sure why you would want or need to be a member there if you have a grad dip fp or higher and passed the fasea exam what for ?

You still need the membership for your TPB registration unless you've done the specific study in law and accounting.

Draft legislation for the Fourth Disciplinary Body implied advisers would be freed from TPB, but everyone has to do the relevant tax and law study, regardless of association membership. In theory everyone has to do it anyway for FASEA.

I couldn't add much else to what everyone says, but I had an old lady who called me and said, the last fp I spoke to wanted to charge me $4k, I hope you don't also, I said no, I have to charge more than that*, and that's all I have to say about that.

poor lady. no one to help her. but, in fairness to myself, I did give her my best regards. and that's all I have to give to anyone who isn't able to pay.

anyway, not my problem. give these clients Jane Hume's number or Mackay's, sure they can help.

*cognitive decline, old age, so many estate planning issues, who needs the risk no thanks, you help them Jane

you are very kind. I would have charged her even for the "best regards".

Yep I can join the club here. Had to shed the smaller fee paying clients, including pensioners. Have also decided not to take on smaller clients who approach me for advice who could see a great benefit in it but can't pay. The very people who need advice cannot get it, yet the government sit there doing nothing whilst ASIC just keep coming up with more regulations. What a mess this industry is in.

politicians photo, no vote = no interest

in fairness to the government and the powers that be, financial planning is an activity of interest to the wealthy. it is fitting then the most qualified professional bunch of us who remain should be servicing the wealthy.

the poor downtrodden huddled masses have Robo advice, ISF, and whatever else bits and pieces they can get on google and from Dazza the plumber.

Disgusting article from Allan Kollar. A laughable proposition, that it's a conspiracy theory that planners actually want complex SOA's in place so we can charge $3,000, and we're fighting complexity.

No conflicts for Alan hey selling his privately owned news letters via the govt owned ABC.
Now on the payroll for Industry Super too.
No conflicts at all hey Alan.
Let’s see you deal with ASIC, AFCA, FARSEA and the most overly regulated and BS Regs world of Advice in the world.
Or better off flogging general advice on TV hey Alan.
How about fully disclosing all your related payments and commissions for your interest.

I'd strongly encourage you to read this article and comment please MM readers.

Alan Kohler is 100% correct. Product recommendation is the last step of the financial planning process. Products are tools to implement financial & life goals and objectives.

What would Alan know - he is just saying what he is paid to say.

Kohler is simply a hack for the Union Super Funds. Kohler has a lot to answer for helping create the Hayne2 mess.

Fired 30% of my clients more than 10 months ago, flogged my entire insurance book for a paltry multiple. Raised minimum fees to almost 10kpa, SOAs now start at over 4K for a single person and we routinely charge up to 10k. Now, we almost exclusively take on wholesale clients and have a 1 in 5 out policy. I don’t even aspire to increase client numbers or grow my business, just want to reduce this disgusting workload and make myself an adviser again, instead of a professional file noter. Your focus should be solely on average revenue per client, which is the only thing that matters with this cesspit of regulation, increasing that number will improve tour wellbeing because it means you aren’t working as hard. The implication is a continuous focus on wealthier and wealthier clients. For each large client we convert, we use it as an opportunity move on multiple clients, increase our minimum fees and reduce our workload, the industry is becoming unviable as it stands and you should forget about your ideals of helping everyday people, you need to survive. I am now unashamedly building a Business exclusively for the rich, the 1 in 5 out policy will take some time, but eventually I will have a wholesale only client base, probably within 5 years. Maybe then, if am lucky I can have a single peaceful working day in my life.

Look, I get that most of us got into this game to help all people, regardless of their wealth or capacity to pay.

But it's just not possible. The last 10 years of nonsense has seen to that. And it's also just an awful approach to business.

So we have to rejig our businesses. Focus on those clients we can help AND that can pay for the advice. It will lead to better businesses, happier clients, happier staff and happier advisers.

It could also mean we can finally burn off some of the bad habits built into the system.

And then, so we can keep giving back to the people we want to be helping, have a formal pro bono program so that you can also help people that can't afford it. Proper, no-fee, pro bono work.

It's a big change, but it could also be a positive one.

Many advisers are leaving in droves because they can't attract clients yet we have so many comments from advisers who have the luxury of shedding clients. Surely there must be some way of connecting advisers who have capacity with more well established advisers. As the saying goes, one man's trash is another man's treasure.

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