“It appears to be the case that the Government, supported by the regula- tor – from what I understand, in evidence presented to the recent Senate Estimates – clearly the Cooper Review, ourselves, the consumers’ association, the Account- ing Standards Board and many others, all take the view that ongoing asset-based fees for advice are indistinguishable – my term, not others’ – from commissions, on a whole range of factors.”
Whiteley says that in an answer to a recent Senate Es- timates hearing, ASIC stated that “‘whilst there is a greater likelihood that investors will realise you’re paying ongoing fees because their investment or bank statement will detail the de- ductions’ – so bank statement presumably means they’re paying out of their own money – ‘rather than being absorbed into the product fees, many people do not read the paperwork.
“‘[Of ] those that do, not all understand it. Inertia is a strong factor in consumer behaviour. In addition, some people may not realise they have the power to turn off such fees. Where any of these factors occur, asset-based fees may resemble trail commission in effect. The proposed opt in is still a matter for Government. In the meantime the ASIC website, Moneysmart, encourages consumers to pay for advice in a flat dollar fee…’
“That’s a response from ASIC to Senate Estimates. I wouldn’t have called it a diatribe.
“The central premise of opt in is to ensure that people who are not receiving advice are not paying for it.”
Rantall says CHOICE and ISN “have no credibility in this debate, because this is a debate about a pricing model between a client and their professional”.
“Clearly, when you’re coming from a self-interested point of view, you are going to put forward a view which is counter to the people that sit outside your network,” he says.
“And this is my point. David comes from a view of representing the industry super fund network – and that’s fine, just be clear about it – where advice is provided within this superannuation fund environment, and cross-subsidised within that environment.
“Let’s just be clear about that. Because let me assure you, what’s happening now, and what you’ve just seen happen in this room, is you’ve moved from a commission debate, where commissions have been banned, and we banned them back in 2009, and then you say that’s no good, you’re still accepting ongoing fees, so the ongoing fee becomes the issue. And then after the ongoing fee becomes an issue you go on to asset-based fees and how a professional charges for their service.
“In a commission-free world, where fees are transparent, where the client has control over those fees and where a client can turn off those fees at any time, that’s as good as it gets, in terms of disclosure, transparency and client control.”
Whiteley and Rantall agree that there is an issue when it comes to how to deal with legacy clients who are paying ongoing commissions but not receiving any advice in return.
“I do not know how you can actually fix that issue. I’ve had some personal experience around trying to remove commission from legacy of back books. It’s quite difficult for a couple of reasons,” Rantall says.
And Whiteley says that “if you get genuine reform in the financial planning industry that permits it to transform into a profession, genuinely permits it to transform into a profession…then the grandfathering of all existing commission – and this is billions of dollars a year that comes out of workers’ superannuation savings – may well be legitimate”.
“There’s a whole bunch of issues outlined by Mark that I agree with; there’s arguably not much you can do about a lot of this,” he says.
Both the FPA and the ISN want to improve consumer trust and confidence in financial planning. Rantall wants to promote consumers’ interests through professional standards for members of the FPA – who represent something like half the financial planning industry; and Whiteley wants legislation in place to raise standards for all financial planners.
“The real issue here is how do we ensure that consumers maintain confidence in the superannuation system and in obtaining advice,” Rantall says.
“How do we support the growth of the financial planning profession? How do we make sure more consumers get advice?
We know that only two in five consumers are getting advice, and that’s not acceptable; we know there’s a massive underinsurance problem in the country, that’s not acceptable; we know the vast majority of superannuants will retire on not enough money to live on and that’s not acceptable; and we know superan- nuation is a really positive mechanism to save for your retirement. How do we collectively, both as an industry and a profession, help and support and grow consumer confidence in that system, such that they get more advice, that they have adequate superannuation and they have adequate insurance. That’s the real debate here. I’d be interested to see the ISN get behind that and support [it].”
Whiteley says ISN’s position is “simple”:
“There’s two elements to it,” he says.
“If you want more people to get financial advice, you’ve got to establish mechanisms through which they can get the advice that they want. So, again, industry super funds have been very supportive of intra-fund advice.
“The second thing, of course, is for the advice industry to professionalise. But do it properly – don’t professionalise in a half-hearted way. Don’t professionalise in a manner that allows you to keep all of the trappings of a sales force, but just claim to be a profession. It won’t work. It’s self-defeating, All the energy is going to go into claiming to be a profession – second only to the medical profession – and yet you won’t be regarded that way by the community.
