The opt in proposals contained in the Future of Financial Advice (FoFA) reforms, will create “a default position where my relationship stops with the client”, according to Greg Cook, managing director of Eureka Financial Group.
The FoFA measure will introduce a new charging procedure requiring retail clients to explicitly agree to fees and continued adviser services every two years, starting on July 1, 2012.
Cook says the potential for client disengagement demonstrates that the opt in proposal is “over the top”.
“The opt in [arrangement] is specifically something that I philosophically dislike,” Cook says.
“The problem of being in a default situation, being that they’re no longer my client each year or each second year, where a client decides to have a sabbatical or they have a marriage break-up or something’s going on, is a bit ridiculous.
“All of our clients since 2009 know exactly the fee they’re paying.
“It’s written to them in big letters, it’s discussed at every review meeting every six months or every 12 months. I’m happy to make it in an even bigger typeface if the Government says that’s what I should do.”
Cook says a relationship with a financial planner should work in the same way as a client’s relationship with an accountant.
“I’ve got arrangements with my accountant for a quarterly fee,” he says.
“I know about that. It’s paid and I see it in my account. The Government doesn’t come and make me re-sign every year.”
Cook says Eureka’s practice, made up of four financial advisers including Cook, and five support staff, will be directly affected by opt in. He says administering the new requirement is “simply going to add an additional staff member in my business”.
“I’d need somebody chasing people up to get them to resign the form,” he says.
Another concern includes the practicality of opt in.
“Is a text message going to cut it? If I’m using a product platform, is the product platform going to do it?” Cook says.
“Is there going to be any retrospectivity to existing remuneration that comes in? It would be pretty unfair for businesses like mine that retrospectively had an income stream.”
Cook says the outcome will be damaging, particularly during times when people need their hand held and need advice.
“I can just imagine it – [the client] will be at their accountant’s and will phone me and say, ‘My tax agent’s having trouble…can you talk to him?’
“I’ll have to say, ‘You haven’t been a client of mine for three months so I can’t talk to you’.
“I wouldn’t say it like that but that’s really going to be the outcome.”
The opt in arrangement also doesn’t solve the fact that the varying types of Australians who need financial advice are not all the same, says Cook.
“Middle-class Australians need less-complicated advice than high-net worth individuals.
“I don’t want to see someone [half-yearly] or quarterly if it’s not warranted or if it makes sense to see them every 18 months,” he says.
“And every business also has sort of a trail-off of clientele.”
The Financial Planning Association of Australia (FPA) does not support legislating opt-in arrangements.
“It is a direct policy to disengage…you’re forced out of the relationship,” says Deen Sanders, chief professional officer of FPA.
“It’s not that you are not offering the service; you cannot offer the service, because you are not getting paid for the service,” he says.
“If you offer a service without being paid you’re actually engaging in a contract that’s not valid [so] you might actually be attaching liability to yourself.
“So there are real consequences in offering a service that’s not being responded to, especially in an environment as contentiously legal as financial advice is. That’s one side of it.”
Mark Rantall, chief executive of FPA, says the “tragedy of opt in” is that “it does not serve the consumer”.
He says the reality of opt in is that it will be costly for businesses.
“Treasury estimates came out at approximately $100 per client and circa $100,000 for a medium-sized practice. These are not figures we’ve made up,” Rantall says.
Rantall says opt in, along with the banning of commissions inside superannuation, is “a solution looking for a problem”.
“The fact is there is no problem to solve with opt in because we’re already banning commissions on investments, which we absolutely support and we’ve got a best interest [duty].
“So both of those things solve the potential problem that everyone argued about, which were passive commissions.
“And opt in is absolutely unnecessary in this environment and it will have unintended consequences.”
The FPA has a practice standard that advocates advisers to see their client every year.
“So we’re more than happy to support a renewal notice where you can put it in bold letters to show clients what they’re going to pay,” Rantall says.
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