Make annual opt-in flexible, workable says AFA

Biennial opt-in arrangements should be retained for low fee-paying clients who have less frequent interactions with their financial advisers.

That is one of the key recommendations contained within an Association of Financial Advisers (AFA) discussion paper on annual renewal and payment options in response to recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

As well, the AFA has expressed its strong opposition to product providers obtaining opt-in authorisation directly from clients and has argued that proof of client authorisation should only be required of product providers every three years.

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The AFA is arguing that flexibility is needed in recognition that some clients will simply not be able to afford a full annual review and renewal service.

It said that on this basis, there could be transition to an annual opt-in model for the majority of clients, but with biennial arrangements being retained for clients paying lower fees and who have less frequent financial advice needs.

The AFA is recommending a formula for the introduction of the annual review in the following fashion:

  • The client should be allowed to renew at any time between the point nine months after the last renewal date and 15 months after the last renewal notice day. The new renewal notice day would continue to be 12 months since the previous renewal date, so the concept of annual renewal would be preserved. Thus, the official renewal notice day will stay on a fixed date;
  • If the client has not renewed by the end of the 15th month, then the fee arrangement would terminate one month later at the 16 month mark, as broadly reflects the current process. Clients would retain the right to cancel the ongoing fee arrangement at any time;
  • The fees expected to be paid in the next year, as set out in the new renewal notice, could be based upon an estimate and not be binding, where the client’s needs change; and
  • Product providers should be required to obtain a copy of the client authorisation from the financial adviser for the continuation of advice fees every third year.

The AFA document stated: “We do not believe that, given the adviser’s obligation to obtain approval from the client every year, that the product provider should be required to obtain it any more frequently than every third year”.

“It is noted that the client may have multiple product holdings and the cost of separately preparing and providing an authority to each product provider would be significant. A three-year authorisation cycle would reduce unnecessary cost.

“We also strongly oppose any requirement for product providers to seek authorisation directly from the clients. Ideally, a systems solution can be developed to streamline the provision of these authorisations to product proposals.”

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Given that up to 900 the Union Super funds advisers are being paid to give personal advice under the intra-fund advice regime with no FDS required (as confirmed by James Shipton of ASIC in the Senate Estimates recently), the attack on personal adviser income with draconian arrangements like the FDS regime is hypocritical in the extreme.

In sharp contrast, none of this nanny-state FOFA baloney is required for wholesale investors, who can simply buy & sell whatever investments that they like from an adviser, for a fraction of the compliance cost, and with no FDS required.

The Fed Govt regulatory red tape has grown so bad that we are fast moving to a point where it would be far more logical to make new provision to allow interested investors to simply “Opt-in” to the wholesale investor category (ie the opt-in would remove the income/asset test currently required). In doing so, it would save these investors a lot of money on Govt regulatory red-tape that is being imposed on them, for no real long-term investment benefit.

If Asst Treasurer Jane Hume is serious about wanting to reduce costs (as she recently stated during Senate Estimates), then winding back Fed Govt imposed regulatory red tape costs is a good place to start. This nation is death-spiraling into a red tape created recession.

This is the same AFA mob that has rejected/fought/slammed every single reform and change announced over the past 3 years. What success have they had ? None. This “report” will go straight into the bin. The reality is, the old days of having a squillion customers and waiting for your phone to ring to provide a service is dead. If you don’t want to see them every year then fair enough. Charge them by the hour when they show up. It’s how most businesses operate..

"The reality is, the old days of having a squillion customers and waiting for your phone to ring to provide a service is dead."

Completely wrong. In fact, this model is doing very well and in fact, customers seem to like it - as evidenced by the move of clients to Industry.

Yes, how the Union Super funds now operate is that they charge their members admin fees for advice most don't receive, and for advice fees that have no way of opting out of. This is a ridiculous fees for no service scam, but this is how financial advisory businesses are being screwed over by the Union Super Funds, in direct conflict with the spirit of FOFA.

Union Super is winning this war, and it is a war, and they want Financial Planners out of the way of Union Super domination in my opinion. Perhaps ...
"The reality is, the old days of having a squillion customers and waiting for your phone to ring to provide a service is dead. If you don’t want to see them every year then fair enough. Charge them by the hour when they show up. It’s how most businesses operate.."
Everyone you mean but not Union Super?

Union linked super funds are simply playing the game. The fact is and as you know, nothing beats a good long term relationship. Industry super might meet the needs of a certain clientele but plenty want the personal ongoing relationship where you as a clients is not having to repeat your story every time. There are plenty of people that want that type of relationship. That hasn’t and won’t change. If that’s the type of relationship you have where there is genuine regular contact (as there should be) then annual opt-in is not an issue. The issue is when you can’t justify it because your service offering is bullshit. What you charge is between you and the customer. What must change is the old business model. You simply can’t be charging fees for bullshit services. Bullshit service is NOT seeing your client and reviewing them at least one a year but charging them anyway. Bullshit service is using a review as a ruse to sell them more or a different product where you as the adviser, derive a benefit. That’s what it’s all about. If you haven’t worked that out or want to persist with resisting the charges, then you can’t survive.

Says the "new game" guy who is charging $10,000 pa & grossly overservicing their clients, when $1,000 pa ongoing would be far better value for money.

Big Trev and others would probably claim that as long as the $10K is paid by fee for service that's perfectly fine. But if the client was to receive a more appropriate and affordable level of service for $1K paid via product, then that should be outlawed.

This hypocritical approach favoured by accountants and the Brammall brigade is making many consumers much worse off. Yet it is being encouraged by regulators and so called "consumer associations". Go figure.

Hah! Let’s not even consider what’s best value for a client! It’s all about the preservation of a doomed business model. Collecting hundreds or thousands a year for doing jack-shit is over. Get used to it. And yes, expect big questions to be asked of super fund trustees. How can a guy with $200 k in your super fund be charged ten times another guy with $20k in the same fund with the same investments ? The shake-up isn’t stopping with advisers alone

Reasonable and well thought out proposition from the AFA.

Nazi Germany!

Choice is the optimum word.
It shouldn’t be Big Trev and people like him who determine how often a client needs to see an adviser and how or what they pay. It should be the client who should be able to have the choice to make the decision to suit their needs and stage of life.
When I set up my Ongoing Service Options just over 20 years ago, we offered clients the opportunity to have a full annual review or a full bi-annual review.
About 50% of our clients choose annually and are happy to pay a higher ongoing fee for the annual service, however 50% have chosen bi-annually and many have changed from annually to bi-annually or vice a versa over the 20 plus years to suit their stage of life. For example, many have changed to annually five or so years leading up to retirement and for 5 or so years after retirement than back to bi-annually.
The advantages of paying an annual fee when you receive a full review bi-annually are numerous but to name a few:
• You are guaranteed assistance for an additional cost between reviews if you need it (this is important to many of our clients as our books are closed more often than open)
• They always have access to our administration team to assist them
• We pro-actively alert clients affected by legislation changes
• They are part of our client community and receive invitations to events and newsletters to keep them up to date on many issues that we feel are important to them
• Paying the review fee over 2 years means smaller instalments than if it had to be paid over 1 year or all at once.

At the end of the day our Service Offer may not be what everyone is looking for; but for the people who it is; they should have the right to continue to have the service and fee structure that they choose as suited to them. The same as they have for over the last 20 years. Remember financial planning clients elect to pay fees.
Of coarse I agree if they are really just a policy holder not a financial planning client then they shouldn’t be charged ongoing financial planning fees.

Thanks for sharing Leigh. This sounds like a great approach. (Although I think you mean biennial rather than biannual).

I often get clients who push back on a review each year because they think it's too frequent. They are quite happy to pay ongoing fees for me to monitor their situation, keep them up to date, alert them when something changes that needs their immediate action, and be available for them to contact me if needed. They just don't see the need for a formal review every single year. Defining the service agreement to include biennial reviews seems to be a good solution for those sorts of clients.

Great comment. The obsession with the annual review is silly.
For example. Say your business needs to charge $5000 to deliver a review and make a profit (not unreasonable with current requirements).
In this situation some people can afford a review every year, while others might need to pay that over 3 years. Why should the person who can only afford a review every 3 years miss out on financial advice? And why should they be forced to try and pay it in one lump sum rather than monthly over 3 years? A forced annual review means that financial advice is not available for people with lesser means and in most need of financial advice.
The current approach really saddens me, as I most enjoy providing advice to people who most need it. I don’t really gain much satisfaction by helping the rich get richer, and taking my time away from people who need me more.
It is awful that the current approach by the government is taking much needed advice away from people who aren’t already rich.

Yes, its the super rich advisers & super rich lawyers (who do deceased estates), in cohoots with the Union Super funds, who are driving the average investor into the Jetstar Economy investor status, where they are left to rot. It's a disgrace.

While an increasing number of us are proactively changing our business models to reflect the intent of the RC , FASEA, APRA and ASIC, the old school keeps fighting every step of the way - without success. What you'll find soon enough is that the number of advisers who have quietly gone fully no commissions and charge non asset based flat fees are growing rapidly and are also flat-out taking on new work from clients seeking out those types of advisers. Make no mistake, the new breed is also in the ears of the regulators and politicians and guess what ? They like what they're hearing. I suggest you read the Frydenberg road-map for the legislative roll-out for 2020. If you think the old business model will survive then good luck.

Big Trev, you seem to have completely missed the point of my comments. Fee for Service, charging a fee for your time, even charge it outside of the product - that option have been around and available to you and me forever - there was nothing stopping you or I doing this twenty years ago.
The point i was trying to make is this - you may be right in the fee for service is the best and only way to go in the future - but the Industry Super sector is not doing the same - although suspect they are please you and I will be that way they can have all of my old client who can no longer afford Personal Advice.
Who exactly is resisting change?

We have a number of teacher clients, who are only getting around to responding to the email/s we send them now, during the school holidays (but not always within the 60 day cut off period). The current Opt in system gives no latitude to when clients want to respond. The alternative is to design a new system, where they could Opt In to a new Wholesale Category, and they could choose to Opt Out of the Opt In/FDS system (that the Union Super funds currently enjoy under IntraFund "advice"] . Personal advisers are being stitched big time & we all need to group together & fight back hard.

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