Greg Cook

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.

9 comments on “Opt in creates “default disengagement””
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    I must be really slow. Y’see, everyone is talking about seeing clients six monthly, quarterly, yearly or, at most, every 18 months. I guess it is a bit of a stretch to think that the ‘adviser’ could not get the client to sign their opt-in agreement at that time.

    Hang on a sec, I reckon the concern is that the adviser may loose remuneration paid on clients they aren’t providing a service to. But that’s awful – how can the government introduce legislation that will see remuneration stop when you aren’t servicing the clients? I deserve the right to continue to be paid irrespective of service provided.

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      How dare they indeed….It is a disgrace! We’re financial planners for god’s sake! If we’re not entitled to receive remuneration for client’s we neither service nor see, then we will be left out on the streets (or so I am led to believe by a number of ‘advisers’).

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    William, you dont have a problem with opt in but dont service low net worth clients?

    Are these people not deserving of fianancial advice? Do they not need this advice the most?

    Well served by Labour? I think not!

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    We don’t have problem with “Opt In” as we have strong relationships with all our clients and we do not expect any difficulties with obtaining clients signatures every year.

    Commission is super is entirely different story because if it is banned then we will need to charge a fee for risk in super and it appears this will mean we must increase the fees charged on the investment side.

    This in itself will create another conflict of interest because if we charge by percentage of FUM then those clients that have little or no risk insurance will be paying higher fee without the benefits of the risk insurance.

    The advantage of receiving commission is that the cost of advice was meet by only those clients that received risk advice.

    We take level commission because we do recognise that up front commissions are a “Conflict of Interest”.

    If FoFA had changed the commission to level only, then we would have no issues with the change.

    The government needs to be very careful in not introducing legislation that effectively reduces the availability of advice to ordinary working Australians.

    Small account balance clients may not value the advice received and may choose not to Opt In at the review time. Advisers in turn may decide that there is no point in attracting these clients because they will lose them again after two years.

    Our practice only deals with clients that have sufficient capital to justify our fees. The only small balance clients we service are those associated with medium to high net worth clients.

    Our minimum fees are just too high for small balance accounts and you cannot service clients properly without being paid.

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    The two year opt-in proposals only go to prove that this is a political exercise and is not related to consumer protection. Not is it unreltaed, it will actually hurt consumers and seekers of advice.

    Have a think about that! It aint rocket science folks!

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    Barry Katzenberg

    A problem that is going to come back and bite the government on the bum, which ever side is in power at the time.

    Hopefully at that time people will recall that it was a labor government bending to their task masters, the unions and industry or union controlled super funds, wishes no matter how short sighted they may be.

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    Fergus Hardingham

    I am perplexed by Greg Cook’s comments RE: opt-in. A client is a client if you are providing advice or a service and are being paid for it. Every annual review Greg does with his clients is an engagement of his services -regardless of when the opt-in form is signed.
    In our practice…we review our clients annually (via a meeting on most occasions or via a phone hook up) and they sign a new Letter of Engagement and then pay our flat dollar fee (cheque or EFT or deduction from super / pension account)…The whole point of opt-in is to ensure that advisers being paid for a service are providing that service – and we all have examples where a new client is coming to us – as the previous one simply collected the % based fee and provided no service…one such recent client of ours was never contacted through-out the GFC but was paying a fee of $8,000pa…would any adviser themselves accept this (ie. paying $8,000pa for nothing)?

    I can accept that the changes are massive for many in the industry used to a certain method of remuneration – however surely advisers have the capacity to adapt – and continue to provide good advice and service and importantly be paid for it.

    Best Regards

    Fergus Hardingham CFP

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    I am a huge fan of the fee for service model but I am amazed that Government thinks they need to legislate two year option for 2 years. One an adviser worth their salt will actually be doing this yearly regardless and the main reason well if the Govenment legistlates this for us then are they going apply this all other industries that have automatic fees being charged. (ie Accountants, gyms memberships)

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    Fred Johansen

    This hits the nail on the head. Every one I have spoken to with the exception of bank financial planners have identified this legislation as nothing more than a rort to support the industry funds. This legislation was allegedly introduced because of Storm Financial and Opus Prime. In reality it was introduced to support the industry funds who have used millions of dollars of clients’ funds to support this legislation. Concerning Storm, one of the authorised training establishments has in their training manual the Storm model as a method of increasing clients’ wealth. AND this has been approved.

    My question is, Does Minister Shorten understand what he has done? Does he read these comments, or is he like most politicians locked up in their own little world of high income and subjected to their mates lobbying? It is obvious to all that the industry funds, that do not give proper advice, are driving the government. In the meantime a cost imposition and an unrealistic requirement, is being placed on the financial planners and the financial planners were not adequately represented at that time by the FPA.

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