“So I tried to cut a deal and it was pointed out to me that you are grossly overpaid for what you do; all you basically do is fill out a form and you get paid a huge commission.
“But I said, I’m generating X amount of revenue for you, and I’d like to employ another staff member to help me write more business; and that wasn’t able to be discussed, because you’re getting paid far too much for what you do anyway.
“Then I looked on the broking desk and thought, well hang on a sec, $400 million of CRA shares just crossed and someone made, I don’t know, $200,000 of commission, which was more than I made on a transaction, so that was a turning point for me.
“But that whole issue of commission hasn’t changed; people are still addicted to it. And the irony of the whole thing is if you look at the Wall Street bankers that are still paid today – with taxpayers’ money – hundreds of millions of dollars in commissions, nothing has really changed. And it’s a bit ironic that the poor old financial planner, who is being asked to wean off the commission system, is the Buffalo Soldier – to quote Bob Marley. They’re the ones at the front getting shot, while the generals are all at the back counting their Greenbacks.
“So I have empathy for those who didn’t make the change, because it’s hard. But I just saw the light, that the person saying that to me was right – and I don’t mind saying who it was, it was Kevin Wyld – and subsequently I thought, well, this will never last.
“I was wrong, actually. How long is it? I need my Hewlett Packard. It’s taken 27 years.”
Alafaci says that when he decided to change how he charged for his services, few clients were willing to pay. They simply didn’t perceive the value in what a financial planner did.
“We had reasonable benefit limits [RBLs] and complicated, ridiculous rules, and it was extremely difficult – and I learned a hell of a lot in those years at Bains – and the clients didn’t value that,” he says.
“So the only solution was to accept these transactional commissions. I realised shortly thereafter that these high commissions wouldn’t last. It was crazy. You do all this hard work, and you become the client’s friend, hoping that they’ll do the transaction so you get paid for all the work you do.
“So I said…I won’t tell you what I said. ‘Forget that’ – that’s a good way of putting it. There’s got to be a better way, and I went back to what I did. I think the first time I charged for a plan fee was 1984, and it was $85.
“Obviously I was too chicken to charge the right amount. Even I was too chicken, and I was supposed to be a trailblazer.”
Alafaci says the role that good financial planners play is undoubtedly one of great national interest. But there’s a structural issue that needs to be addressed, because often the people who need the advice and help the most are those least able to afford it, or least likely to seek it out.
He says some government assistance would be appropriate.
“In a sense, we need like a Medicare levy for advice,” he says.
“I would never contemplate that the fees be fully covered by the rebate. It would bankrupt the Government. And if people get it totally for free, they won’t value it. So there has to be some contribution. But for the basic stuff, you should be able to get some sort of rebate, because we’re helping the nation.
“And that’s the thing, when you asked what’s good about this industry, we do help people.”
Over the past three decades, many things have improved out of sight, Alafaci says. For example, he says Australia is recognised as a leader in financial services regulation, and the Financial Planning Association of Australia (FPA) – of which he is a life member – has had “a tremendous shift of late”.
“But there’s a couple of disappointing things, in terms of the unlevel playing field in the provision of advice,” he says.
“If you’re employed by a certain entity you can get away with blue murder, and if you’re not, you can’t. Seems rather strange to me – and I’ll let you fill in the blanks there.
“And there’s a small shift to independent advice. I’m one of the few groups, if I receive a volume bonus, it gets rebated to the clients. Whilst I use a corporate structure and am licensed by a large conglomerate, I don’t receive any benefit from flogging their products. So that shift, I think, is going to be more prevalent. I used to have my own licence, some time ago, but it’s just easier to use a big firm.
“So true independence, and having an unrestricted approved product list whereby the only thing they can do is take me to lunch, if it’s under $300 – and I’m too fat, so I don’t want to go to lunch any more, so it’s actually a disincentive if you take me to lunch.
“There’s a few independents out there; the FPA has taken a terrific stand to improve standards and raise the perception and reality. [It’s disappointing] that some institutions are able to advertise in a deceptive and misleading manner and employ advisers – be careful how you write this – that are effectively salespeople. They’re good products, don’t get me wrong, but that’s nuts. We should be moving away from that. But that’s how all the life insurance companies grew to what they are I suppose.
