The Future of Financial Advice (FoFA) reforms of the financial planning industry passed the House of Representatives late on Thursday, with the inclusion of a significant modification to the controversial opt in proposals.
The Minister for Financial Services and Superannuation, Bill Shorten, described the reforms as “historic” and that “put simply, FoFA means more money will be better managed”.
The reforms passed by 60 votes to 56 at 7pm last night.
The passage of the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 mark the culmination of a week highlighted by a last-minute concession will allow the Australian Securities and Investments Commission (ASIC) to exempt planners from the opt in proposals if they are subject to an ASIC-approved code of professional conduct.
The amendment, which was the result of late and intensive lobbying by groups including the Financial Planning Association of Australia (FPA) and Industry Super Network (ISN), caught may observers off-guard.
Yesterday was the final sitting day before parliament goes into recess ahead of the May 8 federal budget.
The shadow Minister for Financial Services and Superannuation, Mathias Cormann, expressed concern at the concession, and at the “secret” deals that led to it.
The Association of Financial Advisers (AFA), said the FoFA process had been “blighted” by the eleventh-hour political horsetrading.
The FPA welcomed the passage of the reforms.
“If we are to look forward to a vibrant future, financial planning must evolve into a recognised profession. The amendments to the FoFA reforms help to expedite that journey which the FPA started more than 12 months ago,” the chief executive of the FPA, Mark Rantall, said in a statement.
“We have fought hard for our members from the first hurdle to the last. We hope they will see that the end result is what counts. For FPA members, the formal opt in process may not apply and they may not be subject to that law at all. Our members are also in the best possible position to be captured under the restricted definition of the term ‘financial planner’ which will be tabled in Parliament next year. There are no other groups or bodies that can claim these concessions for their members.”
However, AFA CEO Richard Klipin expressed grave concern that the last minute amendments may have been put in place as a result of side deals involving the Industry Super Network (ISN).
“We are disappointed at the outcome and sceptical about the merits of this ambiguous deal,” he said. “It demonstrates that the Government has played favourites and has not listened to the industry.”
Klipin added that FoFA, as it now stands, advantages ISN and union industry super funds at the expense of other sectors of the financial services industry.
“Side deals negotiated by sectors of the industry with vested interests amount to tricky politics,” he said. “They represent poor process, poor governance and poor transparency – all of which spell poor outcomes for consumers and the advisers who serve them.”
FPA enforces standards and the Code…….one word
STORM!
I just hope that when we say being a member – we mean being a CFP. I think AFP’s should be given a period of 3-5 years to attain CFP status. If we everyone just joins to get AFP status and the exemption from opt in – I ask what has the FPA gained? More money and more members, but a whole bunch of added members there for the wrong reasons.. Lessons from Storm should remind us all that you need to be careful who you associate with. Our reputation is that of our weakest link..
David, in conjunction with an ASIC-approved Code of Conduct and the enshrinement of ‘financial planner’, our professional standards will finally have teeth, regardless of whether one of CFP or AFP. Members will have real professional and commercial reasons for adhering to the Code. The FPA takes its professional code very seriously already; in future so will clients and regulators…and even more so all of our members.
Only 3 letters why many remain members of the FPA (CFP).
Secret Deals and Horse Trading (also read Commission, Volume Bonus, Soft Dollar Incentives) is exactly why we are in this position.
I have no faith in the integrity of the FPA anymore.
So the FPA negotiates with the Government, opposition and independents, in real time and in commercial confidence with tight timeframes, in a manner totally consistent with their published policies that have been approved by their constitution..and this is secret deals and horse trading? No, that is integrity in action.
Matt, you’ve been watching too many of the Bourne conspiracy movies….
Matt, I sit on the board of the FPA. The rest of the time I work as a financial planner helping people improve their lives. I think your comparison of the FOFA outcomes to hidden commission, volume bonuses etc misses the point entirely. The legislation was passed and the FPA helped make it more implementable. Planners will either need to sign up to a code of professional practice or adopt Opt-in. This is a balanced outcome for both consumers and financial planners. The integrity of the FPA is outstanding and your lack of faith in the FPA’s integrity may simply be a lack of understanding.
Neil, I can understand that enforcing a rule that members of the FPA can’t charge asset base fees would cause an uproar, but is really too much to ask that members do not have ownership links or affiliations with product manufacturers?
Seriously, why on earth isn’t this in the code of conduct?
If it was enforced, how many members would the FPA lose?
Is this a fear?
I truly hope you respond.
I haven’t met Neil, but I have watched and respected his journey in our industry. He is a true advocate for client based advice and better remuneration models. I do know Mark Rantall and have also watched and respected his journey in our industry- he worked hard to turn the culture ship around inside NAB.
But I agree more with Matthew and others. Read today’s ASIC shadow shopper – the guts of it is in the first 13 pages and is far more telling a document than most SOAs in their first 13 pages. Our industry’s problem lies in the business models of the institutions who control it. Whether it is commissions, asset based fees, house wraps, inappropriate switching….at the end of the day the institution makes money if assets get managed, the client’s need to reduce debt, work longer, manage budgets, help children are the unprofitable advice incidentals.
For the record I too relinquished FPA membership not because I was anti the institutional focus. I simply measured the value I had received for the 10 years of fees and made a simple business decision.
Matt,
I was a member of the FPA for 10 years; and a CFP for 5 years whilst I was a member of the FPA.
In that time I had one person come in because they found my details on the FPA website. They were far from the “ideal client” status.
I have never in my 16 years of experience been asked by a consumer if I’m a Certified Financial Planner (CFP). I personally do not see any value in the brand. Lot of study, lot of fees, three little letters, no value.
Matthew perhaps there were other aspects of your FPA website profile that failed to attract enquiries. We have reviewed many and they are often very poorly created from a marketing and communication perspective.
We do get enquiries and have acquired fee paying enquiries at our Melbourne office. Admittedly in Hobart which is a much smaller community word of mouth is still king..
When it comes to the CFP brand I make two observations; it has renewed image and marketing occurring in the last year albeit with a nominal budget so is probably achieving a lot with a little and secondly when it comes to professionalism the long term value of a peak professional body can’t be underestimated. I agree the CFP image needed a boost, but when it comes to leading the professionalism charge we have to ask, if we are not part of the solution, are we part of the problem.
I think that the focus on FUM and product flogging is still “the problem” Glynn. I’m not part of that problem.
What do you see “the problem” being?
Thanks for your observations Jim – Opt in wasn’t perfect. No kidding.
Why has the industry missed an opportunity? Because what you wanted to happen, didn’t?
Can I suggest you get into some BCT (Behavioural Cognative Techniques).
Your way, is not always the right way – believe it or not.
The FPA is not the only organisation that represents Financial Planners/Advisers. This backroom deal will only benefit the FPA coffers through new Membership Fees and will do nothing to increase the quality advise provided by 99% of Financial Planners/Advisers IMHO.
That’s right, the FPA isn’t the only organisation that represents Financial Planners, but it is the only organisation that has its stated mission of acting in the public interest by setting, promoting and enforcing the highest standards of professional conducts among its members – and I think Mark Rantall and his team has carried that out very effectively in their work with the government on FOFA. It’s up to the other organisations to determine their own actions and be responsible for their results.
The FPA is concerned with the public first and it’s own members second, and frankly why should it be any other way?
Patrick, below
The Independent Financial Advisers Association of Australia exists to promote the ‘gold standard’ of independence for financial advisers. Members of the IFAAA are genuinely independent financial advisers who stand out from the rest of the financial planning community because they:
Do not have any ownership links or affiliations with product manufacturers;
Do not receive commissions or incentive payments from product manufacturers; and
Do not charge asset-based fees.
Why? These are conflicts and conflicts increase the likelihood of poor advice. Anything less than genuinely impartiality undermines the consumer’s confidence and makes low quality advice more likely.
You mentioned above that the FPA are enforcing the highest standards in professional conduct among its members? Do you still think that after reading what standards one must meet to be a member of the IFAAA?
Matthew, May I ask how many planners IFAAA represents. I am not asking this to cast aspersion because I think what you are doing is admirable and I have moved my practice away from asset based fees for new clients and are phasing out for existing. That said I do not think that a properly disclosed asset based fee is necessarily wrong particularly for smaller clients, The point being we are in small business we should be able to charge how we want to. Remember we decide the price, Our clients will always determine value.
Back to the FPA; We are on a journey to professionalism and the new board and in particlular Matthew Rowe and MArk Rantall are doing a fantastic job. I noticed you said earlier that you resigned your membership. By this very action I think you have given up your right to comment on what the FPA is doing (Ditto Chris Miles). The only way to influence change and be a leader in our profession is to get involved in the organisation and affect change from within. Forums like this dont actually achieve much other than your name in print. And for the record I was once a disengaged membe myself; I am now chapter Chair of my local chapter and have been on national committes for the last 3years.
There are 8 advisers represented by the IFAAA Danny. Here’s how to find them: http://bit.ly/GTsyPD.
Danny I don’t think that by giving up our FPA membership Chris Miles or I give up our right to comment on what the FPA is doing. It’s called freedom of speech; I’m going to exercise is right now.
You’re wrong to say that the “only way to influence change” is to do it from within. I believe that what we’re doing is giving consumers another option and that’s important.
Change can happen from the inside and the outside. Forums like this do have high value to facilitate discussion and let the public know that good advisers who care really do exist. The ASIC shadow shop results published today reported that 3% of the advice was considered good. Chances are some of the 3% were members of the FPA, but then again, chances are many of the 97% were probably FPA members too.
Which brings me to a question for you Danny (and highlights a massive problem I have with the FPA); 80% of financial planners are employed by a financial institution. I don’t think it’s too long a bow to draw to say that at least half of them (so 40% of financial planners) are rewarded by recommending products sold by their employer that they recommend even though better options exist out there.
They’re giving crap advice. The ASIC shadow shop is proof of this. Do you not have a problem with this? I think that 80% of the financial planners out there are giving the other 20% (the rest of us) a bad name. Most of them are members of the FPA. Does this not concern you at all?
I only dumped all that info above about the IFAAA to respond to Patrick’s comment that the FPA is enforcing the highest standards of professional conduct; which they clearly aren’t. Some people just aren’t aware that other standards exist so forums like this help increase standards.
Mark and Matthew might be doing a good job; I’ll be the first to say that they’re doing a fantastic job when they enforce some real changes which will reverse the results of future shadow shops. Danny, I wish you success from within; I admire your patience, mine ran out long ago. We both bring balance to the force (it’s best we agree that there isn’t a “dark side” to the force).
Why would just being a member of the FPA give you special privileges, wasn’t Emmanuel Cassimatis an FPA member and his membership was not cancelled until October 2010 almost 2 years after the Storm collapse?
Opt-In wasn’t perfect.
But it was going to force financial advisers to show value every second year to their clients.
FPA leadership has preferred to take the soft approach that bureaucrats know best – more discussions to develop their own ‘code of conduct’.
Entrepreneurs are at the heart of Australia’s advice industry – not bureaucrats. Entrepreneurs who work with real clients every day, too busy to get involved in the details of policy and red tape.
The entrepreneurs who run the advice firms I work with are years ahead of FoFA (and most regulatory legislation) and wonder what all the noise is about. They just get on with it.
Unfortunately this decision and cave in by Government to the ‘lobbying’ of the leadership within the FPA and Industry Super Network, doesn’t provide the game-changing platform for the late adopting entrepreneurs in the industry to jump across to annual engagement agreements, retainer fees, clearer value propositions and better firm valuations.
We’ve (i.e. our emerging financial advice profession) missed an opportunity here.
The biggest opportunity that has been lost in the FOFA process has been increasing the competency standards (education and experience).
By ‘encouraging’ advisers to be members of an industry association the industry is now in a position to enforce effective and meaningful self-regulation including applying minimum standards of education that are more rigid than required by law and higher standards of ethical behaviour than required by law.
Self-regulation, high minimum competency standards and a high ethical standards are the three characteristics that are consistent across all of the established professions.
The associations and industry participants now have a great responsibility to self-regulate. Let’s hope that the step up to the plate.
Hi Jim, I beg to differ. Professions are about self regulation not regulation imposed by government. Most planners are out there doing a great job for their clients and charging honestly and fairly. Some remain stuck in an antiquated, no service, commission model but not the majority. The FPA has negotiated an outcome that gives us the chance to self regulate to some extent ( if you don’t sign up to a Code of Practice then Opt-in applies anyway). This will allow greater flexibility and speed to change than having to change legislation. Jim, people like yourself are already providing leadership in this area and the success of your business indicates planners are listening. Opt-in was a done deal and this at least gives the profession some control around how we charge. The FPA Code of Practice already disallows taking fees and not providing service. I think management of the FPA management should be congratulated for the balanced outcome for consumers and planners.
It appears even the guts of the annual fee disclosure may have gone as well – now licensees only need to tell clients what fees they paid in the past 12 months. No longer required to explain what the client got for those fees or what they will be paying in the next 12 months and what they will get for it. Opt-in was a big issue but the annual statment was really bigger because the requirement was the licensee had to explain what ongoing service the client got for their payment of a percentage of FUM each year (the ongoing adviser fee). In a great number of cases this was ‘nothing’, Oh sorry, some provided a newsletter.
Removal of Opt-In and annual disclosure allows advisers who provide no ongoing services to continue to do nothing for their clients. It was always going to be the big issue – how was a planning practice that receives ongoing revenue from up to 1000 clients going to be able to provide real service to those 1000 clients each year.
Watch the FPA (and other association) membership rocket.
For those advisers (including myself) who have been either charging a fee for service or, a combination of both fees and service based trails, it’s the same today as it was yesterday. After 27 years in this industry,like many who have been around, many changes have come to pass. I can assure you that my highbred approach has never impacted upon my advice to clients. Simply gentlemen and ladies, you can’t legislate against a dishonest persons intent or actions. There will always be a bad apple in the pile. The reality of what has unfolded (in my humble poinion) is the simple increased control that government want over the industry. Why do such a back office deal with the FPA? We all ask the same question. The AFA in my opinion have done a much more effective campaign for their members than the FPA. Who’s interest are they truly looking after? I don’t see it as the industry given the back room deal done. The FPA and ALA clearly need to work together in the interest of the adviser network but (as i see it) the FPA are hell bent on looking after their own interests to some degree.
As for Jims comments, respectfully Jim, what a load of #%&!*. This new law of opt in will do little to bring about the “showing of value to clients”. I already show value to my clients in the advice i give. Any adviser worth his/her salt do this without question. The reality is that if an adviser is hell bent on dishonest actions, they will find a way around the system. An increasing level of education is what tells the dif between the men and the boys (with respect to the term ladies). The opt in process will simply force practices to reduce their client base to a more manageable size (which is a good thing) but we will continue to see reverse mergers, and the big players getting even bigger unless an opt out approach is taken and not an opt in. Disclosure of fees is a must…………..
Essentially, should we face another market correction of the magnitude that we have faced thus far, clients will take aim at their adviser in some cases and look directly at their fee base to determine whether the can extract a greater internal return on invested funds by opting out of the advice given by an adviser. This simply would open the door to the claims support mechanisms being backlogged in the long run.
I would hate to see a true game changing opportunity to be missed so for the sake of all advisers, FPA and ALA work hand in hand for the industry to thrive not be destroyed by using the industry as a political football.
Enough said
Opportunity missed Jim? Perhaps if you want more red tape…I question what is so wrong with the current opt out model anyway as clients leave if they do not receive ongoing value from their relationships and who wants that as an outcome? Certainly not most advisers I would have thought.
The real opportunity missed is that the government is not encouraging more Australians to seek financial advice by providing them with incentives such as tax deductible fees, raising the super contribution caps, raising the govt. co-contribution, reducing or even better ceasing contributions tax, ridding IP premiums of high state government stamp duties, etc. to name but a few of the things they should be doing.