Retail clients 'risky' to service

Servicing retail clients has become too hard and costly even for larger advice groups due to complex and challenging compliance requirements, according to Lifespan Financial Planning.

Commenting on a significant drop in adviser numbers over the last two and a half years, Lifespan chief executive, Eugene Ardino, pointed out that the regulatory framework had become too difficult for many advisers.

Along with the educational requirements, it was one of the key factors driving them away from the industry.

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He said that several large advice groups and institutions were often choosing not to service retail clients and those groups were shifting their focus on wholesale clients instead.

“I do see some large licensee groups and small advice groups saying that all this retail stuff is just too hard,” Ardino said.

“There are too many minefields and there are too many risks involved so they are only going to deal with clients who meet the wholesale test where they don’t need to worry that much about most of the compliance and consumer protection requirements.

“What I am saying is that a lot of the compliance requirements that are in place are just really difficult and costly and often most retail clients don’t have the capacity to pay the level of fee that advisers would have to charge.”

On the other hand, clients who had met the test for the wholesale category were less protected by the range of consumer protections laws, such as best interest duty, conflicted renumeration or the statement of advice (SoA), among others, when they dealt with advisers or licensees.

Ardino stressed that one of the fundamental problems was also the cost of compliance, which combined with educational requirements, was driving up the total cost of advice.

He said that advisers were seeing the costs of almost everything what they were doing to go up at exponential rates, including the Australian Securities and Investments Commission (ASIC’s) levies and other licensee fees, so it came down to end user clients having to pay for all that.

“I genuinely am thinking what is keeping a lot of advisers up at night is having to tell a lot of their clients that they either have to raise fees or they can’t service them anymore and that is a really difficult conversation to have, particularly with mum and dad clients,” he said.

“It’s kind of perfect storm of factors that is leading advisers to exit and that’s also raising the cost of advice which is essentially moving financial advice into the role of being largely for the wealthy.”

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Spot on. Advisers are leaving because the compliance requirements make financial advice an impossible business. The exam and eduction requirements are a sideshow

Those Canberra bubble bureaucratic moronic Pollies & ASIC must be so proud of themselves.
Can’t wait for the solution to expand Intra Fund Sales Advice to All Advice scenarios.
It will be a perfect disaster of Industry Super Funds flogging single products, no AFSL compliance, no FARSEA education, no BID, no Fee Discloser.
All done by vertically owned call centre jockeys and All paid for via Hidden Commissions.
Masses of Hidden Commissions for No Service as most members Don’t get Sales Advice.
Guarantee this will happen, I will bet anything on it $$$$$$$$
At the same time Real Advisers will continue to be STRANGULATED BY BS OVER REGULATION.

so isn't this the outcome that policymakers and regulators intended, that is, the vast majority of retail clients cannot be serviced?

that was the plan, wasn't it?

I agree that this was the plan all along. Make a special "carve-out" for intra-fund advice and make it as difficult as possible for self-employed financial advisers to provide advice.
When an ex-MP (let's call him the father of FOFA) creates these draconian rules and then enters the private sector as a director and invests in a robo-advice company, it really makes you wonder.

Well said

I could see switching our retail clients to wholesale opening another can of worms. If you're starting in the market from day one, makes total sense. But for an established practice to do this I can see a lot of issues surrounding scrutiny over whether the intent is to circumvent all the legislative rubbish we need to deal with. I'm not saying this is a bad option, just pointing out that we have no friends out there except for our clients and ASIC, AFCA, FPA, AFA etc have a strong interest to keep us in retail. They'll hunt us down mercilessly.

why can't every new client you take on be a wholesale client and for every new wholesale client you acquire you let go of two or three retail clients you don't want to service anymore, over time you will only have wholesale clients and the retail clients will be at the mercy of well everyone else, like property spruikers, and other miscreants?

It is definitely on our strategy and a great approach, but I can see the rules changing to close that outlet over time. The powers that be hate to lose.

Most retail clients have some sort of industry superfund they can get cheap, affordable, life, trauma, retirement and superannuation advice from so they don't need to be paying advisers any more. For investments outside of super, they have their local real estate agent and mortgage broker for "off-the-record" advice and, of course, television programs like the "The Block", "Selling Houses" and "YouTube" for inspiration. For those wanting to invest in shares, there are a whole heap of online platforms available with trades from just $20 and free tips, ideas, recommendations for investing and, with a booming stock market, who really needs to be paying 1% of their portfolio value in fees to licensed advisers when retail clients can sign up to the Foxtel Business channel and listen to the Switzer program, and who has the time/money to commission and read hundreds of pages of technical jargon from a licensed retail adviser about the different kinds of investments, market risk, liquidity risk, volatility, taxation of returns etc and bamboozle the retail client in the process when a $99 subscription to Motley Fool gives them all the share investing information they need in easy-to-understand lingo. For most retail investors, the whole point of engaging a licensed adviser was because they were supposed to be an expert in his/her field and would take care of all the detail and "fine print" without the client having to do, know or read anything, but that is no longer allowed. The retail client expects the adviser to know and take care of this, just like a tax agent or tax lawyer is expected to know and take care of all the laws, regulations, risks associated with claiming an income tax deduction. It seems ASIC and the Federal Government is not attune with what retail investors expect from their advisers, but that's hardly surprising given it's taken the Federal Government way too long to put in place what should have been a simple vaccination rollout. Instead the Prime Minister has been seen on national television (more than once) giving out medical advice without being qualified to do so, without doing a "know your client"needs analysis, nor writing and issuing a comprehensive "Statement of Advice" for the viewer about the risks and benefits of those products he has been promoting. When will ASIC and the Federal Government wake up to the needs and expectation of retail clients, or do all those clients first need to lose all of their savings through online Bitcoin platforms before ASIC and the Federal Government decide to level out the playing field?

Retail clients are too stupid to know what they want. Only Big Brother ASIC knows what they want. That's how it is, apparently.

Steve, your first sentence 'Most retail clients have some sort of industry superfund they can get cheap, affordable, life, trauma, retirement and superannuation advice from so they don't need to be paying advisers any more', is the elephant in the room. Advisers appear to stress that advice is unaffordable because of compliance etc. In short the adviser is not profitable because costs outweigh income. The income source is advice fees and insurance commissions. Do the majority of retail clients who, like you say have industry super, actually need advice? Irrespective of what advisers say, a client is only concerned with maximising super returns so they can be financially comfortable in retirement. What advice can an adviser give that will maximise the clients future retirement benefit by switching from an industry super fund (which are consistently being reported as having higher returns and are cheaper] to a platform/retail fund that does not necessarily perform as well as an industry fund and is more expensive. Another elephant in the room may be that not all industry super funds pay 'ongoing advice fees' from the client account to the adviser. Switching from industry fund to platform will give the adviser easy access to ongoing advice fees. Do the majority of clients really require ongoing advice? Why don't advisers charge an initial advice fee and if a client requires further advice at a time in the future just charge a fee for that service - like other professional service providers. Professional businesses, that retail persons may require the services of, will charge an initial fee and a fee when, and if, the time the person requires the service. What 'professional' or non-professional businesses, other than financial advisers, charge an ongoing fee?

"getwithit" I think you may need to get with it. I think less than 5% of my clients care about "maximising returns". They want appropriate returns where they are comfortable with the associated volatility and feel comfortable they will have a good retirement.

And to your second point about other professional services charges an ongoing fee, I think you may need to expand your horizons as many accountants are moving to this offering and many lawyers will charge a "retainer".

Billy bob, are you saying that if you recommended to a retail client who required $50K pa in retirement that, based on historical returns (which we know should be not necessarily relied on but would form part of product research) the client should not invest in an industry fund that historically could return $50K but, into a retail fund that historically returned $40K - but don’t worry about that Mr & Mrs Client because the fund I have recommend has so many more features (that you’ll pay for and don’t require). Where have you acted in the clients best interest.

“Love advice” you clearly didn’t read the comment properly and are just looking for an argument

Products are the last piece of the puzzle and you can meet a clients risk profile at industry or retail funds and should not blindly accept the “default” offering that use smokes and mirrors to outperform each other for marketing

Why are advisers against industry funds when they generally outperform retail funds - the client will end up with more money to live on - that's the reality of it. (PS: I am not associated with industry funds)

I dont think i can find ANY industry funds which outperform retail funds (other than AMP junk). I love that the ISA have lied to everyone about their returns because it makes it easy to convert EVERY client who has a poor returning indsutyr fund to a retail fund with better returns and cheaper insurance.

You need to educate yourself on the difference between advised and non-advised investment returns, not industry vs retail. I can easily dial a portfolio up to run at 7.5% income plus 8-12% growth. Downside? Illiquidity. I’ll top all charts and be the godfather of returns and make the ISA movement look like crap. But is that in the best interests of my balanced client? Probably not.

Yeah this is already happening, I don't know why you seem to start with the premise that advisers are ripping people off? No adviser forcing ongoing service, particularly for smaller clients. I think the better question is why is there constant intervention between consenting clients and a professional? Every one seems so interested in telling clients what is right for them and how they cannot seem to understand what they are receiving.

My Doctor charges me every year for a check up... So does my dentist for a quick clean most of my checkups never show anything wrong, but just I go every year for a check up just in case I get cancer.... Just because an adviser recommends a product or provider to help a client achieve a goal they are checking to make sure they are on track and you don't end up with a nasty cancer like the one MTAA customers got in the GFC... best fund to the worst.... Host plus do their client understand their balance fund is really a high risk fund....

Your points about industry funds not allowing advice, they let their own internal planners charge... Elephant in the room any super fund that doesn't allow advice fees from internal and external are just using their staff as retention tools and if they are good super funds advisers would recommend them.

An adviser will charge the same fee if they recommend a retain or a new product advisers charge for their time your suggestion would point you don't really understand what an advisers does and value they provide to their clients, if clients didn't value the service they wouldn't pay for it. My client literally has to sign 3 forms to confirm my advice fees which they understand are contracts for 12 months they don't have to renew.

Good point. Just remember the government pays most of your doctor's bill and your health care pays for your dentist checkup (at least my health care does). Would you still pay for the doctor and dentist if they had to produce a 50 page report and charged you $3000? This is more similar to the American health system where people literally die because they can't afford the $3000 doctor cost! So come-on Government. Pay 90% of the cost of financial advice!

Getwithit, maybe you have a set and forget approach to financial planning and you don't value the benefits of having a personalised strategy that suits each client's needs and objectives. I find that strategy can make a substantial difference to a clients circumstances. My clients expect me to keep them informed of not only investments but many other things that could effect their plans. I don't believe industry super funds provide this personalised service to any of their superannuants

I didn’t say I don’t provide strategy advice etc. all I’m saying is where it is in the clients best interest I will recommend an industry fund (which I think you’ll find is a trend among professional advisers).

No Getwithit, professional advisers do research and base their recommendations on facts, not advertising. There are plenty of better performing, lower cost, better service, super funds than the deceptively advertised "industry funds".

If as an adviser all you're focused on is returns, then you need to get with the program. There is a large swathe of people out there that think they can get returns above and beyond what professionals can. And if you're positioning the value as being returns based, you're restricting your impact to a subset of clients. Strategic advice is what benefits clients more than anything and is well beyond the comprehension of the majority of clients. Even if it was within their existing knowledge base, rules and regulations are consistently changing and most can't keep up with these changes or at least implement them in a timely manner.

Well said Steve!

The problem with the first sentence is that Industry funds do not have cheap insurance. It is more expensive than advised insurance in almost all cases. The second is that Industry Funds have poor returns compared to retail funds. But now that it is too expensive for clients to get advice these poor clients are stuck with 9% pa returns in their 30s-50's when any adviser would recommend taking a growth aporach and getting them 12%+ returns which equates to many millions more at retirement age.

It is sad that even people commenting on this thread still believe that ISA have better returns and cheaper insurance.

Yes, Getwithit's claim that "industry funds are consistently reported as having higher returns and are cheaper" would be more accurate if it said "UNION funds are consistently MISLEADINGLY & DECEPTIVELY ADVERTISED as having higher returns and are cheaper".

When a media outlet regurgitates a union fund press release about "superior returns" that is advertising. When a dodgy research company which receives payments from union funds rates those union funds as high performing "Balanced" funds in spite of 80%+ growth assets, that is also advertising.

Union super funds rely on the theory that if you repeat a lie often enough, people will start to believe it's true.

Having said all of that, Getwithit completely misses the point in thinking that financial planning is largely about product selection. Strategy and guidance make far greater difference to client outcomes than product choice.

think of this like climate change - except being forced upon a whole advice industry.
The ecosystem will struggle to survive. Even the product providers life etc have their challenges.
The business model is compromised as admin staff want pay raises, software is expensive .....
Accept it is a business model with minimal margin.

most have accepted this as fact, to the tune of 9,000 advisers who have left the industry including 20% of whom already passed the fasea exam and have an approved degree.

another 5,000 or so to go by the end of the year and a further 3,000 to go by September 2022 so it's all over red rover for the advice industry. the funniest thing in all this is that there are :

a. licensees of all shapes and varieties who think they will survive, ha ha
b. software providers and other ancillary service providers to financial planners who think they will survive, haha
c. various other service providers, audit consultants, law firms, etc

everyone is in denial as the Titanic goes down in flames, everyone believes a digital soa will solve all issues. yeah, for those who think that here is a hint: you haven't got a clue and you are so far out of touch you haven't got a clue.

All the strategies you can do for these clients, co-contribution, spouse contribution, TTR to max caps and lower tax - the benefits don't add up to cover the cost of advice/implementation. Crazy.

These are not the only strategies that could be appropriate for these clients!

Optimist we both know overall super is a part of advice. Just a part of the overall picture. However any phone jockey working for a fund living off admin fees will tell you advice is only about super. Makes thier job easier to not have to cover off any other subject areas. Industry vs retail arguments is all you will get as its all they have. Products are just vehicles some want banged up toyotas others want a ferrari, its really up to them, I dont mind I can service all types of vehicles to suit my clients needs, orhers on the other hand well they can't so they will pretend all clients like banged up toyotas.

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