Mandatory “opt in” legislation is an ineffective and costly solution to a non-existent problem and will do nothing to improve either the quality of advice or access to low-cost, simple advice.
This is the view of The Boutique Financial Planning Principals’ Group (BFPPG), which represents the interests of small, independently owned Australian financial services licensees.
In a late-December submission to the parliamentary enquiry examining the Future of Financial Advice (FoFA) reforms, the group claims the widespread opposition to “opt in” amongst financial planning professionals is because it is an unnecessary distraction with costs that must be passed on to consumers.
While the BFPPG recognises that the FoFA reforms are “a step in the right direction”, it contends that they do little to address the problems that instigated the first Parliamentary Joint Committee (PJC) Review in 2009.
“In addition, they do not yet address the significant remaining issues of disclosure and the differences between the provision of advice and the sale of a product,” states the submission prepared by BFPPG president Claude Santucci and his executive team.
“The PJC Review in 2009 was established to enquire into specific failings (Storm, Westpoint etc.) and recommend how to protect the consumer going forward.
“The statutory best interest duty may have prevented Storm advisers from providing the type of advice that proved to be inappropriate. It is hard to see how the other FoFA reforms would have prevented those failings.”
However, the group reserves its most scathing criticism for “opt in”, arguing that it should only be applicable in cases where the client has no ability to opt out.
According to the BFPPG, the relationship between planner and client must be based on the mutual understanding that financial planning advice has a long-term focus and the simple business principle that a client who is well looked after is a valuable asset.
“A standard business practice is to have a client service agreement or contract that stipulates the services to be provided, the applicable fees, the method of payment and how either party can terminate the agreement,” says Santucci.
“Financial planning clients have a clear understanding of their entitlements and their obligations; they are not disengaged.”
The group is in favour of adding a suitable form of wording to the client service agreement or to a review document to confirm the services and fees.
This, it says, would meet government’s objective of having a client renew the fee mandate on a regular basis without a separate opt–in arrangement adding an unnecessary layer of cost.
“There is widespread opposition to opt in amongst financial planning professionals because it is an unnecessary distraction with costs that must be passed on to consumers,” the submission sates.
“It is an ineffective and costly solution to a non-existent problem and it does nothing to improve either the quality of advice or access to low-cost, simple advice.
“A separate opt-in exercise will encourage a short-term focus from clients. Instead of thinking about investing for their retirement, clients will be thinking about the next year or so.
“It could encourage clients to stop paying for advice at the first sign of a market downturn, which may well be the time when they should be staying the course.”
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