The Financial Planning Association of Australia (FPA) has given broad support to proposals contained in an Australian Securities and Investments Commission (ASIC) submission to the Ripoll Inquiry, but disagrees with the corporate regulator that asset-based fees should be lumped under the heading of unacceptable forms of remuneration for financial planners.
The ASIC submission lists asset-based fees alongside upfront commissions, trail commissions soft-dollar incentives, volume bonuses and rewards for achieving sales targets as payments to financial planners that should be banned.
But the chief executive of the FPA, Jo-Anne Bloch, says the FPA fundamentally disagrees with ASIC on the role asset-based fees should play within the industry.
“ASIC has a view that asset-based fees necessarily promote sales and borrowing [gearing] in an undue way,” Bloch says.
“We would like to see evidence to support that. We just don’t see that.
“We know lots of planners who have moved from a commission-based structure to an asset-based structure, and we would reject [ASIC’s assertion].
“We just do not know where they are coming from – particularly if you recognise that an asset-based fee comes from the client, is negotiated with the client, is disclosed and can be switched off.
“ASIC has said, ‘We recognise that there will be some consolidation’, but that would be a gross understatement.
“If the government does potentially accept ASIC’s views…there could be [other] significant ramifications.”
Bloch says one effect could be that financial planning services become unaffordable for middle Australia. She says wealthy individuals will still be able to afford advice, and models will be developed to deliver low-cost limited advice, but people who need comprehensive advice, delivered at a reasonable cost, my miss out.
Bloch says the FPA agrees with the bulk of ASIC’s submission.
“Overall, we’re pleased that ASIC has stated its views and put a stake in the ground,” she says.
“It has made it very clear what it thinks the issues are, and where it would like to see financial planning go.
“We agree with ASIC’s views on licensing and disclosure and the fiduciary responsibility [of financial planners], and these are all things that we have put into our submission to the PJC. Eighty per cent of it we would agree with. But there’s one thing that we’re very concerned about, and a couple of things ASIC has not addressed.”
One issue is the lack of definition around the terms “financial planner” and “authorised representative”.
“ASIC has instead recommended more prominent disclosure by Australian Financial Services Licensees of the restrictions on the advice that can be provided,” Bloch says.
“The FPA believes that this is inadequate and will not address the problems of product selling under the guise of advice.”
Bloch says it’s also of concern that ASIC, while crediting the FPA for the work it has done in the past on professional standards and professional development, but does not specifically outline a role for a properly constituted professional body.
“ASIC has not considered how a professional body can work with the regulator,” Bloch says.
“We’ve been given credit for what we’ve done, but we’re not embedded in the debate going forward – and that’s a shame.”
In a statement issued this afternoon, Bloch said the FPA welcomed ASIC’s focus on “the need to introduce a fiduciary obligation in the law between a financial planner and their client”.
“ASIC has acknowledged that the entry and therefore education standards in RG146 to become a practicing financial planner are too low; the need to tighten licensing requirements; and the need to reform remuneration structures,” she said.
“The FPA fully supports changes in these areas and has already embarked on a series of initiatives addressing these points.”
The FPA said that of 250 submissions received in response to a consultation paper released in May, Financial Planner Remuneration, some 68 per cent “supported the FPA’s position” that members move away from commission-based advice.
“The majority of submissions came from Certified Financial Planners, and the majority supported a fee-based advice system,” it said.
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