Ensuring all client investment portfolios comply with the Future of Financial Advice (FoFA) regulations, even those of legacy clients, is crucial. This is magnified inside institutionally-owned dealer groups, where legacy books of insurance, superannuation and investment clients likely runs into billions of dollars.
The current period of intense scrutiny from the regulator, the Parliamentary Joint Committee Inquiry and various others further highlights the need to do the right thing, and to be seen to do so.
Stuart Holdsworth, managing director, Financial Simplicity, says its new Portfolio Probity service has captured the attention of a number of financial planning licensees.
“We’ve had good interest across the board, as increasingly groups are being made aware of the risks of possible failures from a consumer outcome perspective, and I think that’s highlighted by a lot of the recent activity in the press.”
Holdsworth reveals that around a dozen licensees have expressed an interest in the service, with all but one institutionally owned, “it’s certainly resonated with them”.
The process analyses clients’ investment positions against various benchmarks, including current compliance guidelines.
There are four key client portfolio aspects it assesses. One is asset allocation, with the Probity service checking all clients are aligned with the firm’s compliance mandates.
Concentration and diversification is another. “For example, some may insist portfolios don’t have any more than 30 per cent investment in one investment type,” Holdsworth explains.
Approved investments, as in making sure products lying outside any approved product list are not present, also form part of the analysis, along with model portfolio alignment.
These checks are also highly scalable, able to be applied across almost any number of portfolios, ranging from hundreds to tens of thousands.
The process should also flag legacy client portfolios that have been switched from another Australian Financial Services licensee. Under FoFA regulations, once new advice is provided to grandfathered clients that are being charged commissions, a new fee for service arrangement needs to be established.
Shifting role for planners
Commenting more broadly on the financial planning sector, Holdsworth says he believes the role of financial planners is shifting from investment sales to professional investment buying.
“A lot of professional sellers of investments are now having to become professional buyers of investments on behalf of their clients,” he says.
“It’s about repositioning the role of advisers in this process to being supporting coaches, as opposed to being sales people on products.
In the post-Future of Financial Advice (FoFA) environment “they have to, because they can’t be incentivised to sell through commissions,” he adds.
