The final point is around this idea of commissions, on insurance. We may even get to a point of agreement here. You either ban them completely, or you don’t. Maybe that’s what should happen. The idea of course is you’ve got to ban them. You can’t be a professional adviser and receive a kickback. Doesn’t matter if it’s for insurance or super, that’s not how it works. If you’re acting in someone’s best interest, you charge them a fee. There’s no reason why the fee couldn’t be deducted from the super fund at some point – but it doesn’t have to be a commission.
Richard Klipin: The issue of opt in is really, really clear. An adviser has a large client base; that client base will need to be serviced; they’re now making decisions about what kind of clients, what kind of service, what kind of price? And what opt in is going to force is that advisers, who are smart, savvy, flexible, small business owners, will be making decisions about where they want to operate; and where they want to operate is in the higher-value end of the marketplace, not in the mid and lower.
“FoFA would get great support from the AFA [if you] get rid of this silliness on insurance”
So, we’re talking here then about access, and affordability of advice. We’ve got modelling, great modelling, from lots of different licensees on exactly what’s the cost, the staff time, the electricity, the client time, the follow-up of the client time, the face to face interview time. The average cost of $100 that was put to Treasury is actually an under-quote. It’s more like $150 or $170. So, when you aggregate that across the 16,000-odd advisers, you’ve got a serious cost impost and a serious problem because advice will go upstream.
Then the counter-argument, which Minister Shorten would argue, is scaled advice. And the danger with scaled advice is that whilst there’ll be an ability to deliver an offer, we’re back in the world of product sales.
FoFA would get great support from the AFA [if you] get rid of this silliness on insurance inside and outside super; the current model absolutely operates fine. And the second one is opt in – I don’t know where that came from, it’s just bad policy, bad policy outcomes.
Mark Rantall: The disappointing thing from my point of view is that nowhere…have we talked about the importance of advice. And our research shows that people who get advice generally save, over their working life, in excess of $100,000 more than they would have, if they didn’t get advice. Now it has to be quality advice, it has to be from the right people, and the consumers need to be protected. And one of the best ways you can protect consumers is to have a strong professional framework, and a strong profession. And, nowhere in this debate has that been allowed to bubble up. Because we just evolve into trying to legislate to fix problems. And what I’d say is, from the Financial Planning Association’s point of view, we absolutely support the vast majority of the FoFA pronouncements; they’re great initiatives, we’ve led the debate on many of those initiatives over the years, and they will protect consumers.
But a last minute throw-in of banning commissions on insurance inside super has not got a consumer protection element to it. It is going to result in less insurance for consumers. Insuring consumers actually protects them, so it’s a really positive thing, and why you’d put a barrier in the way of trying to have people insure themselves is absolutely beyond me. And in terms of opt in, opt in is just swinging the pendulum way too far. Fiduciary duty and banning commissions on investments absolutely solves the problems that it was designed, potentially, to solve. And it is government interfering in the relationship that a consumer has with their professional.
Michael Rice: Commission is just a different payment system, and in a world of perfect, transparent disclosure it could work, and it did in the 70s and 80s, to some extent. But the real issue is that the world is changing and I don’t think the FSR [Financial Services Reform] Act of early 2000 really is appropriate anymore, and some change was needed. It’s been very difficult for advisers to give advice.
I think we’re going to move to a regime where everybody, not just industry funds, will be able to give simple advice, cost effectively. And that does need a bit of a different mechanism. FSR was written around an adviser giving holistic advice, over a period of time, by someone who engaged with their client annually. And that’s only one of the models that will emerge in the future. One of the problems with commission is, for example, on life insurance, up-front commissions have doubled in the last decade, from probably 70 per cent to 140 per cent of premium. And the life companies are losing money because of high lapses and churning of business. So, we could have solved this problem by just moving to a level commission structure, or modifying some of the problems rather than banning the whole system; and I think the hybrid of super and non-super will cause problems. But it may lead to a fee-for-service system, eventually.
On the opt in, we’ve done some figures. My personal view is it costs about $5 per client per annum; in my firm we’ve compromised on $10, and that was the work we did for ISN. Opt in, in itself, does not cost a lot of money. The other FoFA things may well cost advisers money. But to have to tell your client what you’re going to charge in the next year is a fairly trivial exercise, if you are meeting them every year. However, if you’re not meeting them every year, and you’ve got to tell them what you’re charging for not meeting them, then obviously there’s a bigger cost. And I think this debate is being torn in different directions. The whole FoFA regime may well add a lot of cost to advisers. Hopefully it will be a one-off transition. But the cost of opt in is surely very trivial.
