Fortnum chairman calls for more adviser transparency

Financial advisers should be forced to disclose any non-advice-related payments from product providers, since this is part of the reason why Australians are still sceptical of advisers, argues Fortnum Financial Advisers executive chairman Ray Miles.

In a white paper released last week, Mr Miles said FOFA may have banned conflicted remuneration, but it did not separate financial product and advice.

This could be achieved by increasing transparency, making it illegal for product manufacturers to coerce advisers and lifting entry requirements for AFSLs, he said.

"Financial planning has become inextricably linked to product selling and conflicted remuneration. Australian investors don't trust financial advisers to act in their best interests, even if it is the law," Mr Miles said in the white paper, titled And the walls came tumbling down: Why the industry must build a new foundation.

"The advice industry must be more transparent and pro-actively stamp out conflicts if it hopes to improve its image and earn consumers' trust. It should embrace, indeed spearhead, sensible reforms rather than insist on self-regulation which it has repeatedly failed to do so."

Mr Miles said the industry could increase transparency by forcing advisers to disclose any non-advice-related payments from product providers.

"[Advisers] don't have to (and don't) disclose if they received a payment to join an institutionally-owned licensee, or if their practice is part or full-owned by a product provider," he said.

"If an institution has acquired an interest in a practice, as is increasingly common, advisers are not required to disclose the sale price or details of the arrangement, for example, if a higher price can be achieved by hitting specific sales targets within a set time period.

"Arguably clients have a right to know given these payments and deals have the potential to influence advice. In cases where advisers also own equity in their licensee, they should also disclose any dividends," he said.

Mr Miles is in favour of licensees being made to publicly disclose their revenue and profit, and the average cost of providing licensing services. He would also like a law that makes it illegal for product providers to pressure advisers to sell their products.

"In addition to client fees, [licensees] should be clear and upfront about non-client revenue sources like rebates, subsidies and allowances," he said.

"In other industries, coercion is regarded as criminal behaviour, however, it's largely ignored in financial services, especially within salaried networks. There must be clear and enforceable boundaries between advisers and product manufacturers to protect consumers and advisers."

Mr Miles added that many product failures that occurred in the past decade happened in small, independently-owned AFSLs with directors who had "limited compliance experience and little understanding of how investment products work and should be selected".

"Applying for, and gaining, an AFSL can cost as little as $6,000. There must be tighter restrictions on who can be granted an AFSL and there must closer monitoring of AFSLs," he said. 

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+2 #14 Reg 2016-02-29 18:28
The biggest issue with this is we as advisers are getting pounded from within our very own industry. It is amazing how many traitors we have, who can knock out a white paper and receive all the publicity by making that one outlandish statement. I feel Advisers have been deliberately manipulated where we are kept talking to ourselves through forums such as this. Nobody but us read our own comments. Divide and conquer is what these so called experts in the field have successfully done. They seem to come out with another wild statement to give us something to gripe about and it always turns out we are talking between ourselves whilst they are laughing their heads off. I never see the AFA coming out publicly defending comments like Mr Miles and others make. Is the real issue that your own dealership have lost Advisers who have set up their own Dealership.
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+6 #13 Warren 2016-02-29 14:37
Please please show me "those Australians" who are still sceptical of financial advisers. I have still not encountered one and keep hearing the same BS from the institutions and government it's a fantastic throw away line to keep undermining the advisers. Enough said!
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+3 #12 craig 2016-02-29 11:25
Mortgage brokers 0.25% trail ?
FOR WHAT ????
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+5 #11 Joe 2016-02-29 10:24
Pot calling kettle black!!! Self righteous even when doing exactly what supposedly is being exhorted against.

Either actually practice what you preach or shut the firetruck up and stop grandstanding.

(And this message is from a truly non-aligned, non-manager funded, no product bias firm & wider licensee)
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+5 #10 RJ 2016-02-29 08:42
Here we go again - bashing all advisers over the head again. Easy way to get publicity but what are ASFLs and institutions / product providers doing to enhance transparency. Advisers are at the end of the line dealing with clients and we can only do what we can to provide the best possible advice. And what if we are doing a great job and the clients are happy and they know what they have to pay for the service and they know what conflicts of interest may affect the advice. I am all for everything to be disclosed but for god sake stop bashing advisers as if we all sink to the lowest common denominator. I for one have had a gut full of this 80's mentality from within the industry.
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+14 #9 Amused 2016-02-27 13:08
Coming from Ray, this gave the whole industry a good laugh.
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+3 #8 Rick 2016-02-27 10:20
It's not so simple and this fellow of all people should know that!

When will people wake up & realise that although Advice is key the Products help us facilitate good advice.

Product providers and advisers need to work together to provide clients with the best solutions and experience.

Without our support Product providers don't have millions to spend on system upgrades etc. be careful what you wish for and who you support.
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+4 #7 Adam P 2016-02-25 09:57
The Government has there head so far up the institutions that they will never force proper disclosure of institutional ownership of AFSL's and thus Adviser distributions channels.
The Government should be ashamed of the lack of transparency they enforce on the institutions.
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+1 #6 Philippa Sheehan 2016-02-24 14:47
I would like to say that I will see the day in Australia where product providers and advice are clearly separated. I am not sure I will. In the meantime, lets get on with providing fantastic advice (without product if its not required) and help clients on their journey to financial independence. The industry will improve over time.
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+11 #5 Confused 2016-02-24 10:06
Quoting Jimmy Neutron:
Would that include payments to the AFSL from Fortnum Wrap & the UMA? Where is the independence if you have a large percentage of your FUM directed into a small number of investment products linked to or owned by the AFSL holder? Isn't this the same as someone from Comm Bank FP putting all or most of their recommendations into CFS First Choice?

Interesting isn't it that Ray Miles and some of his other cronies within Fortnum sit on the board of Excel Super!
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+26 #4 Jimmy Neutron 2016-02-23 11:02
Would that include payments to the AFSL from Fortnum Wrap & the UMA? Where is the independence if you have a large percentage of your FUM directed into a small number of investment products linked to or owned by the AFSL holder? Isn't this the same as someone from Comm Bank FP putting all or most of their recommendations into CFS First Choice?
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+3 #3 Rob Coyte 2016-02-22 20:20
There is more and more options for advisers who are looking for licensees who don't operate "this way".

This demand will only get bigger as clients insist on alignment of their interests from their advisers.
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-1 #2 adrian 2016-02-22 19:18
Agree 100% with Ray.

All payments must be disclosed on advice sent by the product provider, in the form of a annual or interim statement to the client.

Kind regards,

Adrian Totolos.
Business Analyst.
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+5 #1 RT 2016-02-22 13:34
Absolutely totally agree. Increased transparency is arguably more important in driving public acceptance and better client outcomes than the current ethics drive ( not downplaying ethics in anyway of course).
There are so many insto deals out there like special individual sign-on terms, preferred share buys and sales, lock-ins to margin share, shadow product pricing etc all based on a product usage that there is undeniably an expected product bias from the adviser.
The regulator has not been taking the right questions.
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