In an email sent to ifa, executive director of the AIOFP Peter Johnston said that it had become apparent that regulators wanted advisers to change in the same way as the legal industry.
“It has become quite apparent that some politicians and the upper echelon of our regulators are convinced that consumers want financial advisers to charge in the same manner as the legal fraternity,” he said.
“A natural thought considering most of them have a law degree, but hourly rate charging is one of the most conflicted and despised forms of charging … bar none.”
Mr Johnston said the advice industry was in danger of heading down the same direction as the legal industry where only the well-off can afford legal advice.
“Those consumers who really need advice will not be able to afford it due to the high cost of advice delivery being imposed on the industry,” he said.
Former High Court judge Jim Spigelman heavily criticised hourly rate charging in a 2005 paper, said Mr Johnston, yet commissioner Kenneth Hayne seemed to conclude that advisers should start charging one.
“Royal commissioner Hayne’s conclusion that risk products should be ‘commission free’ and therefore charged on an hourly rate basis demonstrates this bias and the lack of international research behind his thinking,” he said.
Mr Johnston points to the UK as an example that made the decision to ban risk commissions, which led to higher premiums among a range of issues that led to job losses.
“To revive the industry, commissions have been reinstated to 240 per cent upfront to attract advisers back into the industry,” he said.
Instead, Mr Johnston urged that politicians and regulators adjust their thinking so that Australia’s advice community was not negatively affected.
“Our message to the regulators and politicians is that consumers detest paying an hourly rate for risk advice and unless you want a ‘UK type’ disaster in the Australian risk market, please adjust your thinking,” he concluded.
Well put Peter,
The recommendations and their authors would be put to shame by simply all Australian advice clients signing a letter stating their sentiments. And from what I have fielded out there, clients do not want any of the proposed changes. They do not want a higher fee regime, nor do they want their already-highly skilled adviser distracted by a pointless education programme. Best wishes with the challenge! Thanks.
100% lawyers and politicians are the biggest leeches and drain on every society all over the globe. useless fools and oxygen thieves. Getting rid of that scourge would solve the whole global warming debate
Critical we retain coms for insurance. 80/20 is the sweet spot. Thanks for fighting…
I don’t often agree Johnston but I do on this issue. I pay a monthly retainer to our planner. For that we get excellent support, service and advice from his firm. I am free to contact them when required with no risk of bill shock coming from an interaction. The relationship with a planner for us is an ongoing valued based one not a single transaction that lawyers provide.
The customer does not have the problem with risk commissions that the bureaucrats do. Listen to the customer is all I can say.
Some non-lawyers think hourly rates equates to professionalism. So will advisers have to run Trust Accounts with over-the-top amounts of funds deposited by people seeking advice, just to get action. And hold some back for claims & admin. This is just lunacy!!! Come on life insurers – get off your arses and co-ordinate to Government
It’s because everyone in Canberra are failed lawyers – that is all that they know. Lawyers are the leeches in society. If we charged like a lawyer we would be taking 30% of a clients super portfolio!
I would love to see a Politician actually sit down with industry and to have everything we do explained (now you would think that they have some awareness given all the red tape legislation they have passed!!??).
That’s so well written and agree entirely, I have spoken to many people including both advised
and non advised clients and they simply don’t want the current world to change as there is a sense of community in the world of advice where clients feel supported and cared for in most instances. I hope the Government and regulators are careful with what they change as consumers will be the ones who evidently will suffer the consequences.
The ALP wants only the wealthy to have advisers. They want everyone else to be in an industry fund. They do not see any conflict of interest in that.