In a letter to Minister for Financial Services Stephen Jones, Paul Melling Retirement Planning (PMRP) founder Paul Melling argued for age and fee exemptions on the current requirement for annual “opt-in” fee consents that advisers who have ongoing fee arrangements with their clients are obliged to seek.
Mr Melling’s suggestions were: “To allow financial advice clients over a certain age the ability to ‘opt-out’ of the annual opt-in fee consent requirements. We suggest age 70+ (or even from age pension age) but certainly no client over 80 years of age should be forced to comply with this burdensome administrative paperwork regime.
“To allow financial advice clients whose (fixed) annual advice fee is less than a dollar threshold the ability to ‘opt-out’ of the annual opt-in fee consent obligations. We suggest $2,400pa or $200 per month as a threshold.”
As an adviser that specialises in providing advice to retirees, Mr Melling explained that complying with the paperwork requirements can be difficult for older clients.
“Most our clients have been with us for over 20 years — many for over 30 years. They should not have to sign forms every year simply to retain their financial adviser and avoid termination of this long-term relationship,” he said.
“Keeping on top of unnecessary paperwork (or keeping on top of an email inbox) is not easy for many clients and gets more difficult with age. They emphasise strongly that they do wish to continue their relationship with us to provide that support in their advancing years but can’t always keep on top of the paperwork.
“These clients should not be forced to comply with this unnecessary administrative paperwork.”
In terms of introducing a fee threshold for the opt-in, Mr Melling argued that due to the increase in “advice orphans” following the Hayne royal commission and the resulting ban on grandfathered commissions, too many clients are “too small to profitably service”.
“By removing the administrative burden of requiring annual ongoing fee consents from ‘smaller balance’ clients (but retaining complete disclosure of these fees in super fund annual statements), financial advisers can be supported and incentivised to look after those ‘smaller balance’ clients,” he said.
“For administrative efficiency, this exemption should only apply to adviser fees which are fixed (and therefore readily calculable).”
Mr Melling added that evidence from industry indicates that very few financial advisers would take on a new client for an ongoing annual fee of less than $2,500 a year, which led to the choice of a $2,400pa threshold.
“If improving access to ongoing financial advice for ‘lower balance’ clients is to be achieved, allowed an ‘opt-out’ exemption to the administrative requirements for these clients makes sense,” he said.
Commenting on the proposal, IFM Securities director Lionel Rodrigues said that PMRP has put forward a solution that would lower the administrative burden without harming consumers.
“For my part, as an active advice practitioner, the case made by PMRP is logical, based on sound practicalities in operating a personal advice business, offers a solution for the minister to consider, contains arguments that are not detrimental to consumers, and demonstrates a professional approach to providing quality and affordable financial advice,” Mr Rodrigues said.
“The PMRP proposal attempts to properly encourage the minister to implement policy changes to the benefit of consumers by addressing the administrative burdens unnecessarily imposed on what has now become a profession. The optimum outcome would be for the minister to repeal these onerous compliance obligations,” he added.
While the Quality of Advice Review (QAR) did not recommend scrapping the requirement for annual opt-ins, the PMRP proposal is in line with reviewer Michelle Levy’s call to simplify the process.
Under recommendation eight of the final report of the QAR, Ms Levy said compliance with these “important consumer protections” should not be an “onerous obligation” for financial advisers.
“Providers should still be required to obtain their client’s consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single ‘consent form’,” the QAR reads.
The single consent form, which “should be prescribed”, would also authorise the deduction of advice fees from the client’s financial product and “should be able to be relied on by the product issuer”.
“Multiple forms would only be required where fees are to be deducted from financial products issued by more than one product issuer,” Ms Levy noted.
Additionally, under the same recommendation, Ms Levy has called for “a single prescribed form” applicable to all product issuers, including superannuation trustees.
In a video message to the Stockbrokers Conference held in Sydney on Tuesday, Minister Jones stressed that all QAR-related decisions will prioritise consumers.
He explained that, just like he did with the experience pathway, he is “determined” to work with the industry and regulators to “get it right” and “make a meaningful difference”.
“I want to make sure that the profession is properly regulated and governed so that people and processes are best placed to get consumers the advice that they need,” Mr Jones said.
“We also want to have a conversation about how to get more advice to more Australians in a safe way that puts at the centre consumers.”
Touching on the retirement income of Australians, the minister highlighted that access to financial advice can assist in “making that wealth go further”.
“But we need to do it in a way that is measurable, consumer-centric, and responsible,” he said.
The letter to Financial Services Minister Stephen Jones has been made public and can be viewed on my linkedin profile. It seems I am not allowed to publish the link in these comments.
The letter proposes that older clients (especially over age 80) and “smaller balance / smaller fee” clients (under a suggested threshold of $2,400pa) be allowed to opt-out of the annual fee consent obligations (and opt back in at any time).
We asked industry participants and associations for feedback prior to finalising and sending the letter – thank you to those who responded.
We recognise that the suggestions made are suited to our own established, and often elderly, retired client base, and may not be helpful to everyone – but they are made as a result of our experience with our retired client base.
If others have suggestions based on their own experience, we encourage them to also contact the Financial Services Minister.
We hope that with enough input from experienced industry professionals and a little bit of common sense, the “advice orphan” problem can be solved and reversed.
If you have any feedback, please either provide it as a public comment below or alternatively email me privately at Steve@Melling.com.au
– Steve Melling
With so many older clients, who don’t use email, smart phones or the internet and are based all over the country it can be a real challenge to chase clients for signatures. If I spent less time chasing clients for signatures or sending paperwork two times because it got lost in the mail, I could spend more time and energy to generate better client outcomes. Even if it was extended to 2 years as previously under FOFA, it would enable advisers to spend more time focused on their clients rather than being worried about getting paid.
If you’re meeting with your clients and doing your job it should be no issue to get these clients to opt in
That’s fine if all your clients require (and can attend) meetings every year.
But is it necessary? Our proposal gives clients the choice – opt-in or opt-out, and the ability to switch between these two options.
None of this affects your ability to continue with annual opt-in with your clients if that is what your clients enjoy.
– Steve Melling
signing annual term agreements (or opt in’s) is a quick adobe or docu-sign. our elderly clients are the best at electronic signatures. it’s not hard, if it is hard you need to improve your processes
Yes – some of them are fine with it. Many don’t trust email or SMS, and rightfully so.
If your clients enjoy your annual electronic opt-in, then you are of course welcome to continue it.
Our proposal simply gives each client (over the age threshold, or under the fee threshold) the choice of opt-in or opt-out.
– Steve Melling
Paul’s points have a lot of merit – perhaps remove the need to consent etc… after a 5 year client period has lapsed, but something needs to be done for the older clients it is very burdensome for them, particularly the longer serving clients that are familiar with the adviser and their fees/process etc….
Thanks Julio – we did consider exactly that, a 5 year client period, but realised it would be too difficult for a super fund/platform to administer and prove. You could have a client with you for 20 or more years, then use a new super fund or platform and then have to provide proof to the fund that they had been with you for 20 years.
It didn’t seem workable when we considered it. Thank you for your feedback and suggestion – maybe we don’t have it right but we’re thinking about the issues and making suggestions which hopefully make sense.
Certainly we feel that giving choice back to the client is the way to go – they have had that choice taken away (without their consent), and we can clearly see the results – higher fees, higher costs and 2 million+ advice orphans.
– Steve Melling
the optin in fee and FS and annual renewal – obligations over the last little while has confirmed a few things –
a. the clients are well and truly over the bollocks – its borderline embarrassing for the emotionally mature and self directed
b. Optin in and its variations has nothing to do with the client – it was more to do with the effort to destroy the business model. seems kind of pointless now
c. its costs a fair amount of time and money to administer – note one declaration for the licensee and a separate for each platform.
smaller long-term clients continue to scratch their heads at what the Govt is playing at –
d. as always this will anecdotal evidence will fall on deaf ears.
Good observations.
According to the FAR he is no longer licenced?
Also, if my website was that shotty I wouldn’t be drawing attention to myself.
I think he’s got a good idea, but the wrong way around. There should be tighter controls when people age – not less
Correct – Paul is retired.
Sorry about the website.
Steve
Paul obtained his unrestricted dealers license in the mid-1980’s.
Most of retired clients would not agree that more paperwork is required.
The good thing about the opt-out proposal is that they have a choice.
At the moment they have no choice.
Not sure why this came up before as anonymous:
Paul obtained his unrestricted dealers license in the mid-1980’s.
Most of our retired clients would not agree that more paperwork is required.
The good thing about the opt-out proposal is that they have a choice.
At the moment they have no choice.
– Steve Melling
Why is it that as an accountant, my clients DO NOT have this nonsense annually imposed and my legal colleagues have a client agreement which says what we will do as the adviser, what you will do as the client and how either providing notice can terminate our relations. So to my local news agency, my telephone, gas and electricity company via their terms and conditions, yet as an adviser we have nonsense imposed only to then have the fools that allow this, politicians on both sides, greens, consumer groups look at us with suspicion to justify their own jobs and then stand back and wonder why the cost of advice has gone up for all…especially those at the lower end who need the advice…..a case of dah perhaps?
The fixed anniversary date needs to be removed with the ability to renew the relationship at any point during the next 12 months. With the fee ending 150 automatically after the one year anniversary of signing “the previous agreement”
The FDS needs to be simplified by removing services, and the fee consent removed.
The issue (for me at least) is that the anniversary date is fixed, I’m often seeing clients on Monday when the anniversary date falls on a Tuesday so it’s a go to jail situation if providing them a FDS. Dealing with product manufacturers and their own process adds to the costs. Even a 40 year client recently struggles with two & three factor processing. Placing some limit or floor or age is just stupid.
Voluntary opt out is great idea. Not unlike Wholesale v Retail for some, consumers should have the ability to say I don’t want all this paperwork
One work, Delusional.
I’d make it a few more words — good ideas but will never happen so delusional.
My emails to the previous government (Frydenberg/Hume) went unanswered.
Perhaps we are delusional thinking that this time is different – but I have hope.
Stephen Jones seems to me to be a very different person to John Frydenberg. I hope and trust that he is open to sensible suggestions such as granting each client the freedom to opt-in or opt-out of the current regime.
– Steve Melling
I agree with this article, people are being charged more because of all the red tape and forms that need to be signed. The requirement to opt-in every year should be abolished and replaced with an annual FDS plus whatever is shown in the super statement. If the client is dissatisfied with the service then they are big enough and old enough to opt-out themselves, but they certainly don’t need to be reminded 3 times a year on what fees are being charged.
A burden on older client’s? What???? review all your clients and get them to sign the paperwork at review time. Opt out arrangements are for old school advisers that do not want to review their clients and only want to keep getting paid. It is a concern that Mr Melling’s letter is being brought up, he sounds like an adviser that we really do not want in our profession.
Sounds like you need to have a chat with Michelle Levy – she seems to think good advice can be charged to people without the need for any paperwork or review – so what is your point?
If your clients enjoy annual opt-in, there is nothing stopping you from continuing.
Our proposal to allow them to opt-out would simply give them the choice.
I suspect some of the 2 million advice orphans would enjoy that optionality – especially if gave them access to a financial advisor again.
– Steve Melling
Yes, I am delighted to take about 5000 orphan clients at $100 a month. They are desperate for service support, and if we revert back to global standards (where there is no Annual Fee Consent Renewal Form red tape), they can access that support.
After looking at his website it may be he is unable to use email.
The website speaks volumes
haha he has just received the largest spike in his website traffic ever!! However, I doubt anyone is tracking this at their end
We do use email, but our public website is not really a promotional tool. We’re kind of busy with looking after our existing clients (and producing and following up up administrative paperwork).
You can email me at Steve@Melling.com.au
-Steve Melling
This man does not speak for the industry.
Correct. We speak only from our own experience and not on behalf of the industry.
Correct. We speak only from our own experience and not on behalf of the industry.
– Steve
And this ladies and gentlemen is why this profession is in such a mess….. Mr Melling exhibiting self intrest me thinks.
Does his proposal benefit his clients, or his register value when he goes to sell his business?
This proposal would benefit our clients and ourselves. We don’t have any intention of selling the business.
This proposal would benefit our clients and ourselves. We don’t have any intention of selling the business.
– Steve Melling
If an adviser can’t see a client each year then they should not be taking fees.
Either do your job, or don’t get paid.
Simple.
Getting elderly clients to sign for fees is not burdensome – it forms part of the annual review. ITS YOUR JOB – JUST DO IT.
It wasn’t part of the job just a couple of years back. You could do your job without the added overhead of the forms and compliance. You could actually do your job at a lower cost to the client and less stress for the adviser and staff.
Not sure if you can hear this message from up high on your horse?
Issue is, a lot weren’t ‘doing their job’. They were doing nothing other than ‘offering a review’ for their ongoing fees and sending out a newsletter, much of the time, to the wrong address without a current phone number on record.
Service the client and get them to sign the form at the time same, otherwise, don’t charge a fee.
That sounds like a good argument to eliminate ongoing Intra-Fund advice charges then. All Industry fund members are charged these advice fees on-going, without consent, and many of those fund members will never receive service support.
Spot on. Imagine the reduction in retirement income these poor members suffer just because a product provider has decided to charge them a fee for a service provided to someone else? If the service was any good (let alone good advice) then why can’t them member pay for it directly from their personal account?
Seems this argument was settled when Commissions were banned – time for a revisit?
Sure – I’ll do it – and charge more for my service. More time equals more cost.
Yes – well this of course is what has happened. Advisers have increased their fees and terminated their “smaller” clients and more “difficult” clients (often older clients who aren’t good at paperwork).
The result? The “Cost of Advice has gone up” (or so it appears from the outside looking in) and we have over 2 million advice orphans.
The reality is that when you terminate “smaller” and “difficult” clients, and retain a smaller number of higher-fee clients, your “average fee per client” rises. Naturally you won’t take on a new client (given your limited capacity – time and energy) unless their annual fee is at least as high as the new, higher average.
This is reported by the media as “the cost of advice has gone up”.
If we are to allow wider access to financial advice (to some of those 2 million advice orphans – plus the thousands of new retirees each month) we need to make it easier (less time-consuming) for both advisers and clients to retain their advice relationship.
Hopefully our proposal to give clients the freedom to opt-out of these obligations can help.
The other option of course is to allow unqualified and inexperience super fund call centre staff to fill this role – and advertise “free advice” on evening TV. Perhaps we will end up with both option – but I hope it is not just the latter.
– Steve Melling