Challenge and consider changing your licensee
- published on 17/05/2012
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The professional obligations of financial planners trump those of their employers and should guide their behaviour in dealing with practices or processes that ... [more]
Boutiques dismiss ‘opt in’ as costly, unnecessary
- 19 January, 2012
- 9 comments
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“Financial planning clients have a clear understanding of their entitlements and their obligations; they are not disengaged,” says Santucci.
Mandatory “opt in” legislation is an ineffective and costly solution to a non-existent problem and will do nothing to improve either the quality of advice or access to low-cost, simple advice.
This is the view of The Boutique Financial Planning Principals’ Group (BFPPG), which represents the interests of small, independently owned Australian financial services licensees.
In a late-December submission to the parliamentary enquiry examining the Future of Financial Advice (FoFA) reforms, the group claims the widespread opposition to “opt in” amongst financial planning professionals is because it is an unnecessary distraction with costs that must be passed on to consumers.
While the BFPPG recognises that the FoFA reforms are “a step in the right direction”, it contends that they do little to address the problems that instigated the first Parliamentary Joint Committee (PJC) Review in 2009.
“In addition, they do not yet address the significant remaining issues of disclosure and the differences between the provision of advice and the sale of a product,” states the submission prepared by BFPPG president Claude Santucci and his executive team.
“The PJC Review in 2009 was established to enquire into specific failings (Storm, Westpoint etc.) and recommend how to protect the consumer going forward.
“The statutory best interest duty may have prevented Storm advisers from providing the type of advice that proved to be inappropriate. It is hard to see how the other FoFA reforms would have prevented those failings.”
However, the group reserves its most scathing criticism for “opt in”, arguing that it should only be applicable in cases where the client has no ability to opt out.
According to the BFPPG, the relationship between planner and client must be based on the mutual understanding that financial planning advice has a long-term focus and the simple business principle that a client who is well looked after is a valuable asset.
“A standard business practice is to have a client service agreement or contract that stipulates the services to be provided, the applicable fees, the method of payment and how either party can terminate the agreement,” says Santucci.
“Financial planning clients have a clear understanding of their entitlements and their obligations; they are not disengaged.”
The group is in favour of adding a suitable form of wording to the client service agreement or to a review document to confirm the services and fees.
This, it says, would meet government’s objective of having a client renew the fee mandate on a regular basis without a separate opt–in arrangement adding an unnecessary layer of cost.
“There is widespread opposition to opt in amongst financial planning professionals because it is an unnecessary distraction with costs that must be passed on to consumers,” the submission sates.
“It is an ineffective and costly solution to a non-existent problem and it does nothing to improve either the quality of advice or access to low-cost, simple advice.
“A separate opt-in exercise will encourage a short-term focus from clients. Instead of thinking about investing for their retirement, clients will be thinking about the next year or so.
“It could encourage clients to stop paying for advice at the first sign of a market downturn, which may well be the time when they should be staying the course.”
At last someone who is in a position to state the obvious in open forum and in print where hopefully, the government will take notice. Why take a sledge hammer to crack a walnut? You can not legislate against dishonesty. This part of the FOFA reform will only make practice revenue flows unstable in times of market volatility due to the consumers perception that, as their portfolio is not making a perceived efficient return on capital, the adviser isn’t doing their job and they the investor, will opt out of the service when it is needed the most. The opt in process will also take affordable advice out of the range of many consumers who actually need it the most. I personally have scaled back my practice simply becasue of the cost associated to the new opt in direction.
So let me get this straight Peter, FOFA is going to make practice revenue unstable, not the fact that the practice is basing it’s fees on a % of a client’s portfolio?
During volatile times what clients needs most is for their adviser to keep them disciplined and focused on their long term goals; not give into short term emotions. All Opt in is doing is ensuring that advisers are staying in contact with their clients once a year (or once every two years). And yet that’s too much to ask is it?
Those planners that have not made the transition already, will be unlikely to survive, so if you wish to survive, get your service model in order before it is too late.
FoFA and Opt-In are opportunities which we have already embraced and other than the final Opt-In wording required, our clients are already signing their Opt-In agreements using our own wording.
As a professional planner every client should be reviewed at least once every year and I do not see Opt-In as an issue as we will merely make it part of our normal review process. The real issue is that most planners have too many clients and they are currently failing to review them at all. They fear that Opt-In will diminish their income and this fear is probably correct.
This is a great time to be a professional financial planner as the growth opportunities in front of us are a once in a life time event. We expect to grow our business at least 200% of the next 3 years.
Our people and our systems are already in place, so bring on….
Price Financial Intelligence
William Mills
Theresa, clients that recieve no service are not required to pay a fee. If it truly is a fee (and not a commission) then they can simply opt-out if not happy. Given this is the case, why do we need opt-in?
Because commissions aren’t going to be stopped automatically Darren. Advisers are going to continue to receive commissions and they have to have a piece of paper signed by a client which confirms that they’re aware of the fee and are actually getting some value for it.
Opt in is needed to confirm that they are getting something. Your question to me is as bizarre as asking why do we need to get clients to sign an Authority to Proceed…
Good call, could not agree more. The real issues have been totally missed by the Labor reforms under FoFA. The days of unfettered advice are numbered with 85% of advice coming from Banks and Institutions that can not be client focused.
If a planner is servicing clients on an ongoing basis, the ‘opt in’ provisions will simply become part of that service delivery. The only planners who will be negatively affected by the ‘opt in’ requirement will be those who do not service, or who have lost contact with a client. If there is no contact or no service, why then should the client be required to pay an ongoing fee to the planner?
Spot on Theresa.
Just shows how blinkered our government is and perhaps showing knee jerk legislation yet again. I have no probs getting our industry to be seen as “professional” but FoFA is not achieving that. Lift perception by positive stories in mainstream media and counter small minded thinking of both pollies and industry. This is a collective problem and bashing one sector alone is not helpful to clients or the industry as a whole.