A new study has found consumers are better off with opt in arrangements in place, as paying for financial advice upfront made the cost “between two and 17 times cheaper”.
The research titled The Value of IFFP Advice, conducted by Rice Warner Actuaries and commissioned by Industry Super Network (ISN), compared charging structures between commission remunerated advice against hourly rate fee for service advice.
While Industry Fund Financial Planning (IFFP) advisers hold a strict “fee for service, no commissions” philosophy, retail advisers using the ongoing asset based fee arrangement with their clients have been in the firing line.
Jonathan Ng, actuary at Rice Warner, says that one of most significant findings of the study was that “having upfront fees is a cheaper way to access advice”.
The study found that in every instance, the “actual cost of financial advice was greater where the client paid an ongoing fee”.
Ng says opt in would therefore support the crucial need for cheaper financial advice so that more Australians will be able to afford it.
The report notes: “Paying for advice upfront is consistent with the Government’s proposal to require clients to annual ‘opt-in’ to their advice agreements. The ‘opt in’ rule ensures that adviser remuneration is aligned with personal exertion and brings the service into line with other professionals…[and] avoids fees creeping up in line with market performance”.
Ng says: “With the opt in with retail planners, a lot of them seem to be remunerated through an ongoing asset-based fee whereas the IFFP planners are remunerated upfront.
“Being remunerated upfront and a client opting in every time they take [annual] advice, they’re aware of the fees upfront that they’re going to incur and the fees incurred at the time of advice.
“Whereas retail planners with the ongoing fee, at the moment, each year they don’t necessarily opt in and know [what they’re paying],” he says.
“When opt in comes in, retail planners will have to approach their clients each year to get them to agree to the fees they’re going to charge.”
David Whiteley, chief executive of ISN, says that financial planners attempting to block opt in as part of the Future of Financial Advice (FoFA) reforms could therefore lead to Australians paying up to “17 times more” for advice.
“The report demonstrates ongoing fees are typically the most expensive way to pay for financial advice,” he said in a statement.
“The report shows that, as proposed in the Government’s Future of Financial Advice reforms, one off and transparent charging for financial advice will reduce costs to consumers. This will consequently increase the capacity for ordinary Australians to access financial advice, whether from financial planners, accountants or super funds.
The Rice Warner study focused on the different advice models that Australians approached their planners with: insurance, co-contributions, salary sacrifice, transition to retirement planning and retirement planning.
“We then compared three sorts of scenarios,” Ng says.
“One, if the client did nothing, what would their retirement balance look like?
“The second was if they got the advice of an IFFP planner and see what the additional value the planner would bring to their account and obviously, deduct off the upfront costs associated with the IFFP planner.
“And the final one was if they went to a retail planner and once again, compared the value of advice and cost of advice.
“Basically, by comparing those three scenarios we were able to look at the relevant value between each,” Ng says.
Why do you give time to these types of studies. Magazines that are specifically aimed at planners should not give time to these ISN funded studies.
Wake Up.
It is my opinion that the “professional planner” is working against financial advisers, their articles are often condemning financial advisers and payments to advisers via any other means than an hourly rate. Professional Planner advocates that advice cannot be good if the adviser is charging a commission, Storm advisers (I use the term loosely) did not charge commissions !!!!
He who pays the piper calls the tune, and in this case the piper was commissioned (paid)by Industry Super Network, what a croc.
Even the government have admitted that Opt-in will increase costs for both consumers and financial planning businesses, in a recent study they conducted. According to this study, opt-in would increase costs by an estimated $100 per client and $100,000 per financial planning businesss. How can increasing red tape have any effect other than to increase costs
So a study commissioned by David Whitely concludes that opt in is the way to go. I am absolutely stunned. Has David Whitely ever sat in front of a client and provided advice? What are his credentials. They must be reasonably impressive for him to be telling a nation of financial planners how they are to be remunerated.
The IFFP always fall to the lowest common denominator. You get what you pay for. I can easily demonstrate client financial positions improving by tens of thousands over the short to medium term, in many cases. Are they saying that the way I charge the fee is more important than improving the client’s position?
Everyone here seems to be missing the point. The survey is saying that opt-in will lower the cost of advice. Opt-in does nothing but make someone re-sign a contract with their financial planner each year. It is the way a person is charged which will decide whether it is cheaper or not. The person conducting this survey has added 1 + 1 & come up with an answer of 3 as an excuse to justify opt in. He has missed the whole point.
This is old research being rehashed. My clients can pick up the phone and ring me at any time, and are advice extends beyond their super..They can stop paying me at any time as my fee is dialed up. This is explained to the client by both my firm and the product manufacturer. SO what’s the problem. No commission, client is voluntarily choosing to be a client..IFFP are useless – which is why ISN are now looking to team up with other firms