Writing in The Australian yesterday, Mr Kohler said a financial plan costs “at least $2,000, usually more” – but that high price is not down to “years of study by the practitioner or the expensive equipment being used”.
“In fact, health check-ups usually cost less than wealth check-ups, even though they’re carried out by someone who has studied for at least seven years and who is probably using very expensive equipment indeed,” he said.
“Why has financial advice become so expensive? Because of regulation. Clients are paying for attempts to protect them as much as they are paying for the advice itself,” said Mr Kohler.
Regulation has focused on disclosure, so that any advice provided to clients comes with “huge volumes of expensive paperwork that no one reads”, he said.
“That’s why clients know the advice is not worth the real cost. Most of the price pays for disclosure that they’re not going to read,” said Mr Kohler.
“And the reason that sort of misguided regulation was introduced was that financial advice arose from a sales culture – that is, from life insurance,” he said.
“The definitions in the laws that control what advisers do, and the training now required to be a financial planner, are all about products and disclosure rather than simply financial advice,” he added.
As a result, regulation has had the “perverse effect” of encouraging people in the financial advice sector to disguise the way advice is being paid for, through “commissions and percentages”, he said.
“The regulation of financial advice has created a kind of whirlpool effect, where the regulation increases the cost and the high cost produces the need for more regulation,” said Mr Kohler.
The Coalition’s attempt to cut regulation is “a good thing”, he said.
“The trouble is that Assistant Treasurer Arthur Sinodinos is allowing a sales culture back into financial advice at the same time,” said Mr Kohler.
“The FOFA reforms, introduced last year, were the first attempt to eliminate the idea that a financial planner is really a salesperson – usually for a bank – by banning commissions,” he said.
“Senator Sinodinos and his colleagues should be sending a message loud and clear to all financial planners that they are not salespeople – they are pure advisers,” he said.
I read a comment once that retail investors will always get the advice they pay for. ie they typically pay poorly, and therefore end up with mediocre advice.
How much did Alan’s little bit of advice cost you all??
Perspective?
I agree with elements on why advice is expensive but disagree with the criticisms of efforts made by the government to make the regulations workable. Also comaprisons with others like Dr’s are pointless because we have a co-payment system called Medicare and Drs have waiting rooms full of people who are aware of the need to see one, unfortunately most members of the public are unaware of how ‘unwell financially’ they are – until its too late. I also disagree with the suggestion that the advice is ‘not worth it’, surely that should based on the outcome for the client. Client surveys have consistently highlighted that those with an adviser fare better and know where they are heading financially – isnt that what we want?
Oh Please! Oh Please! That just doesn’t make any sense. Higher and improved education standards for industry participants is vital. Fortunately the value of advice is in the eye of the recipient and has no upper limit. If you cap the value of your advice (assuming generously that you are an Adviser) at a $1,000 you must be missing some very key areas of advice. Also, if you cant hack the education requirements you may have found the answer.
Spot on Alan. We all have been hijacked by the education providers convincing a clueless government that compliance & study is a good thing. RUBBISH! Good advice stands out a mile as does bad advice. The fix is easy, rid our industry of dealer groups, useless compliance no one reads & box ticking over priced education. Introduce a new regime, scrutinise the advice & swiftly eject the offenders with jail time.
I wouldn’t trust let alone pay any adviser who charges more than $1000 for an soa no matter how complex or how much is saved by executing the strategy.
I don’t always see ‘eye to eye’ with Alan, but I’m pretty much fully on board with his comments above (apart from an apparent confusion between the role of the product providers and that of the advisers in the creation of a commission system back in the ‘bad old days’).
Let financial planners provide strategic wealth management advice – and let product salesmen fulfill any investment needs!
The regulation is there as the education standards are simply too low to protect the consumer. To make matters worse, the FSC are trying to do a carve out through scaled advice for the very sales people that your referring to – planners (or more correctly ‘agents’) employed by a bank or industry funds.
Raise the education standards and you reduce the need for excessive regulation. Encourage education by reducing the compliance requirements for CFP’s FCHFP’s etc. Consumers will get good affordable advice provided by appropriately qualified people.
Agree with Investor. Get daily access to a taxpayer funded national advertising platform – then charge subscribers for the privilege of receiving commentary denigrating your competition. The ACCC probably can’t intervene…? Nice business plan Mr Kohler!
Everything he says is correct except the disguising of fees. Half the disclosure is about how we get paid and how much in dollars and cents. Then of course there is that vested interest where the Eureka Report targets the DIY investors…so of course financial advisers are not worth the fees.
How’s that big “sell all your shares because I am” call at 4100 going Alan?
Given his efforts to denigrate advisers to help flog his newsletter, one can never be quite certain which side Mr Kohler is on, mostly his own, most of the time.
Mr Kohler plays both sides of the fence. He gets to have his no cost, no competition, no risk ABC platform as well as charge the clients that are brought across to his personal business. It is a very nice little arrangement. Free advertising in effect, funded by the good old Australian Tax payer. Advice would look cheaper if we could have free Australian tax payer advertising. Things are not quite as hey seem.
Congratulations Alan Kohler. I could not agree more. For years I and many others have been saying that SoAs are virtually useless. In most cases they do not give complete advice, are repetitive, too costly and concentrate on the compliance aspects of disclosure rather than the financial advice component
As you said no one reads them and if you do you will find spelling errors, non sensical statements and irrelevant ones. Keep up the attack.
I can prepare a one page spreadsheet which will give more financial advice than a 25 page package of mostly useless information. It will not give the numerous warnings obviously but that could be addressed quite easily.
Financial planning compliance needs a big shake up.
Hooray, thank you Alan. Clear, precise, relevant and instructive comments.
Regulation and compliance always create an artificial, complicated, high cost and confusing environment, and raise false expectations that invariably produce the exact opposite of their original intentions. Should we have any at all?
The article appears contradictory. In one sentance he bangs on about financial advice being to expensive because of regulation & in the next he slams Arthur Sinodinos for changing a small portion of FOFA.