However, these tend to be in situations where advisers have close ongoing relationships with their clients, reinforcing the value they add through ongoing strategic financial and asset allocation advice, so that their clients are likely to be fully aware of the high levels of service they are receiving in return for the fees they are paying.
One outcome of the move to flat fees is that more accountants will move into providing financial advice. The absence of conflicts and the alignment of remuneration with the client’s interests fits well with their existing model.
PLATFORM AND FUND MANAGER REBATES
The legitimacy (or otherwise) of platform rebates has perhaps ignited as much passion in the industry as advice opt-in arrangements and commission on risk insurance.
Many industry participants have argued that platform fees are merely fees for a service – namely the provision of a platform upon which products such as invest- ments, superannuation and risk insurance are administered. As such, platform rebates would be service fee rebates, unrelated to the provi- sion of financial advice, and could continue in their current form.
Others have countered that if this were the case then clients should have the ability to move from one platform (or “service”) to another at no cost. In practice this becomes difficult.
For example, in relation to superannuation, when moving from one platform to another in a different superannuation trust, assets must be sold within one trust and repurchased within another, thus crystallising capital gains and possibly resulting in buy/sell costs.
A perverse outcome of the Future of Financial Advice, in its original form, might be that dealers groups establish their own superannuation funds, thus taking on trustee obligations within their own group. This would result in a significant increase in the number of APRA-regulated superannuation funds, increasing compliance costs for the industry as a whole.
In some cases this might also be perceived as resulting in a reduction in member security, given the significant financial resources available to the large wealth managers which currently act as trustees for the major retail superannuation funds.
A possible outcome in the longer term could be that volume-based rebates continue to be paid to dealer groups (which would require a relaxation of the approach proposed in FoFA) but that individual advisers would continue to be remunerated on a fee-for- service basis, unrelated to business volumes.
This would clearly involve some complexity, as it would result in a number of grey areas, such as where advisers or advice practices are rewarded on a basis that reflects the dealer group’s overall profits.
INVESTMENT ADVICE
The provision of initial and ongoing advice on asset allocation and investment option selection is often seen as one of the key services provided by advisers to their clients.
The use of separately managed accounts (within existing retail platforms, through SMSF platforms and using individually directed portfolio services) is likely to increase, particularly for higher-net-worth clients.
This is a natural progression from the use of model portfolios, and the capital gains tax advantages can be seen as a quantifiable “value added” for clients as a result of the adviser’s services.
Furthermore, regular reporting of the portfolio structure, asset allocation and portfolio investment selections and divestments (for example, under discretionary portfolio services) fits well with a remuneration structure based on fees at regular review dates.
Products and services of this kind also serve as a good defence against competitors that offer SMSF platforms with flexibility to “self-direct” investments.
Offering equally flexible and comprehensive platforms and products with the additional benefit of professional financial advice can be a winning combination.
PRODUCT RESEARCH AND APPROVED PRODUCT LISTS
Much has been written about the role of research ratings in some of the recent, high-profile financial collapses, such as Basis Capital and Great Southern. Advisers need access to deeper product research than simply the ratings set by external research houses. Research obviously costs money and this will be one of the many drivers of consolidation within the industry (as discussed above).
