New research reveals that the Government’s controversial “opt-in” proposals are likely to be a major hurdle, for more reasons than one.

Kathleen Tepana

Of all the proposals contained in the Government’s Future of Financial Advice (FoFA) proposals, few have attracted more widespread opposition than the so-called “annual opt-in”.

Along with banning commissions and the introduction of an explicit fiduciary duty for planners, the opt-in proposal was one of three key recommendations in the package of reforms released by the former Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen. (It remains to be seen if his successor, Bill Shorten, will pursue the reforms with the same enthusiasm.)

The FoFA package unveiled an “adviser charging regime, which retains a range of flexible options for which consumers can pay for advice and includes a requirement for retail clients to agree to the fees and to annually renew (by opting in to) an adviser’s continued services”.

The Financial Planning Association of Australia (FPA) has publicly and vocally denounced the opt-in proposals as being unnecessary in a regime where fees must be agreed to by the client, and paid directly by the client to the planner, thus enabling the client to opt-out of an advice relationship at any stage.

But research by Tepana Associates has found that “advisers are united in the belief that the regulator and the major industry body have failed to understand the nature of the client- adviser relationship, the success of the current disclosure regime, and the level of comfort that many investors have with commission arrangements in the wake of reforms introduced nearly 10 years ago”.

“Opposition to the opt-in proposal runs deeper than just the effect it may have on the client/planner relationship”

“While regulation is intended to provide better consumer outcomes, advisers believe it will reduce the time they spend with their clients and increase their administrative and compliance workload,” says Kathleen Tepana, a consultant for research group Tepana Associates.

“A significant number are yet to make plans and are looking to their licensees for assistance in transitioning to fee-for-service arrangements.”

But opposition to the opt-in proposal runs deeper than just the effect it may have on the client/planner relationship.

“Opt-in is considered a major business disruption, and while it is recognised as a high priority issue for planning businesses, it is one that the majority have yet to address,” Tepana says.

The research also finds that the opt-in proposals are thought likely to affect business values; and if they’re introduced in their proposed form, may accelerate the exit plans of a proportion of advisers.

“The larger licensees stand to benefit,” Tepana says.

“A number of respondents raise concerns over the impact of future business values, with a number indicating an intent to bring forward succession or exit arrangements, while others fear an increasing consolidation of advice businesses. It appears the proposed reforms will most benefit the large institutionally owned licensees who have large administration and compliance back office support.”

Other beneficiaries may be platforms, Tepana says.

“Opt-in is likely to drive a migration of clients from legacy products into more modern wrap-based structures that support fee for service,” she says.

“However, this will not result in the client paying lower overall fees, but wrap and master trust providers [will increase their margins], further consolidating the nature of relationships between product manufacturer and the advice process.”

Overall, Tepana says, there is “a high level of uncertainty over consumer benefits”.

“Planners believe that the proposed reforms will not deliver any real benefits to consumers but will transfer business value away from the smaller independent practice, to the larger licensees, and the wrap and master trust sector.

6 comments on “In, out … shake it all about”
  1. Avatar

    Still trying to identify the problem that required this ‘opt in’ initiative to be introduced in the first place and if so, why it is limited to financial planning remuneration. Each month, home & contents premiums, car insurance premiums, foxtel payments, mortgage repayments, energy australia payments and charitable donations are automatically deducted from my salary. Should each of these “service providers” not have an opt in mechanism like the garbage that is being proposed for planners?? Yet another legislative change created by the trade union funded industry super network. Parasites.

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    We have operated on a fee for advice for many years and our clients opt-in when the pay our invoice for the next 12 months service in advance. Those that no longer want or need us simply don’t pay and that is that. So what is the problem. The government can’t force clients to opt-in because they are doing it anyway.

    The government needs to wake up and understand that the current remunerations structure with the sale of insurance is working just fine. So why dump on the honest advisers because ASIC was a sleep at the wheel for years by not inforcing the existing laws or taking seriously our complaints about Storm et al!!!

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    My experience is that the client calls the shots. If they don’t like an adviser, they go elsewhere. There’s nothing to tie a client to an adviser except a quality professional relationship. I think the whole “opt in, opt out” debate misses this point entirely, although I agree that its the big groups that will benefit from these proposals if they go through and small groups (like me) who will lose out. That means in the end the client loses out, because where will they go for advice that is truly in their interests if the only options for advice are the big groups?

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      Sue you are dead right, I have for the first time ever, had a client express serious concerns that everything they have will ultimately be controled by one of the banks and they are not happy.

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    The legislation surrounding opt-in is being considered, in the main, to reduce the volume of passive income clients within an advisors business I believe. This cannot be construed as a bad thing.
    Opt-In legisaltion should not be a concern for those who are reviewing and meeting their clients regularly. To have a discussion about renewing a contract of services annually, at a review meeting, opens the door to constructive feedback that will help you develop your business and possible enhance referals.
    For those clients not being met annually there is a big question, unless you are acting in a semi-power attorney basis and adjusting portfolios remotely for a client, as to exactly how you are continuing to add value. Therefore why should you receive continuing revenue.
    I agree with William that opt-in is unecessary in an ideal world but realistically it is being considered because it is needed to ensure clients don’t get charged for work they are not receiving.

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    Whilst we have the capacity to comply with these requirements, we agree that an annual opt in requirement is totally unnecessary.

    Clients however should always be made aware that they have the right to opt out.

    Should clients elect to opt out, then the adviser ceases to have responsibility for any future issues with managing the portfolio.

    This PI aspect needs to be clarifed prior to implimenting any changes.

    William Mills

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