The institute recommends that grandfathered commissions be outlawed “immediately”, raises concerns with platform fees, believes the industry must ensure independence of advice and aligns its remuneration model to a “balanced scorecard” approach outlined in the 2017 Sedgwick review.
Speaking to ifa, CFA Societies Australia Advocacy Council chair Stephen Dunne said he doesn’t believe there is a cohesive willingness among advisers to change.
“The issues around banning grandfathered commissions and the pushback it has received demonstrates that the advice industry may not be ready to move away from being a distribution channel, a sales channel on behalf of the product manufacturers,” Mr Dunne said.
“If we want to actually professionalise then we need to take that leap and it needs to be a collective leap. The future success of the industry does require it to change. If it doesn’t change it will essentially whither on the vine.”
In a 60-page report titled Professionalising Financial Advice, the CFA Institute and CFA Societies Australia note that they do not see a single solution to the problems highlighted by the Hayne royal commission.
The report pointed to industry research that suggests more than half of financial advice firms still rely on grandfathered commissions for at least 15 per cent of their revenues and that for a significant proportion of the industry grandfathered commissions still represent a meaningful portion of revenue.
The CFA Institute has made 10 recommendations in relation to the financial advice sector, two of which look to ensure independence of advice.
“Consumers are often confused as to the independence of the adviser or advice firm they are dealing with,” the report said.
“The use of different brands and unclear disclosure of ownership or affiliation can mislead the consumer. Advisers and their firms might propose a restricted offering to consumers, who would not realise that the restriction was due to the adviser’s affiliation with another financial institution.”
The institute pointed to the example of regulations in the UK, where advisers or financial advice firms cannot claim to be independent if they are in fact part of a larger group.
“We acknowledge that Section 923A of the Corporations Act already contains terms governing who can say they are independent. In our view, this should go further to require those that are not independent clearly state they are not, especially to acknowledge if they are owned by a larger corporation,” the report said.
The institute also recommends that an independent professional body be established to register financial advisers.
“An independent industry body would register advisers, check qualifications and have the power to discipline its members,” the report said.
“Currently, individual advisers act as representatives of their firms. Despite detailed compliance procedures and layers of reporting and management, firms struggle to monitor the behaviour of their advisers appropriately.”
Melbourne-adviser Paul Moran of Moran Partners Financial Planning told ifa that he has been advocating for a standards body for some time.
“I like to think of it as the Australian Financial Planning Standards Council,” he said. “A body that would operate something like the AMA or similar where an elected group, supported by a professional team, was responsible for the oversight of the standards,” he explained.
“Importantly, they should not set the standards, but rather enlist a large number of committees to focus on specialist areas so as to engage with as many interested professionals as possible. The committees themselves should engage with academia to generate the research needed to develop and constantly improve the standards they would set. We would need strong government support for this and I’m not sure that we would have that right now; but perhaps in the near future.
“I truly hope that we can rise above the situation we have found ourselves in today – often considered untrustworthy and unprofessional.”
I recommend Mr Dunne go suck on a lemon the fool.
This is just another bunch of people pushing their own barrow. I suggest that they try and discover what the financial services industry is in Australia and then have a think about whether a Chartered Financial Analyst would even get licensed by ASIC. Doubtful.
Nice web site devoid of detail
15% of advisers revenue coming from commission is not a bad outcome….given account based pensions that are grandfathered and pretty much every adviser has a client on their books that are happy to pay $500 for a catch up every couple of years.
My commentary for this article was in relation to another article entirely hence the lack of any correlation to this information provided.
Apologies to all other respondents.
I know of CFAs in corporate finance that generate hefty commissions and get paid whopping bonuses, and this is still ok apparently.
@ BOB maybe they need to add another level, a level iv, which is more analysis and synthesis rather than regurgitation and memorization
To think that Kenneth Hayne believes that Life Insurance commissions should be banned as soon as possible indicates a very clear misunderstanding of the depth of engagement and the technical and strategic advice and knowledge that is provided every single day by high quality, professional risk insurance advisers.
These people need to be both highly technically proficient and empathetic and humanistic on every level to ensure
the client clearly understands the financial impact of underinsurance.
The client must grasp the risk/cost/value equation and relate that back to a clear understanding of the impact and outcome analysis.
At the crux of all of this is the skilled advisers ability to ask the appropriate questions in a manner the client feels comfortable in disclosing the details.
It is human nature not to rush to discuss matters that make us feel either uncomfortable or vulnerable, but if the gateway to doing so is done correctly, potential problems and financial risk can be alleviated or minimised.
Not everyone is skilled in this area as it very much depends on how the adviser sees their client and the advisers personality and level of empathy.
All the haters including the ISA who constantly bang on about risk insurance commissions and conflicted remuneration
are simply uneducated as to how close relationships and levels of trust are crucial to the disclosure of personal information and concerns of a financial nature…….they will never understand what the great risk insurance professionals do every day of every week of every year….its not in their DNA.
To paint a picture that doesn’t exist and to discuss intangible benefits that may never come to fruition is of value to the community because it allows them to make important informed decisions when they may never have done so beforehand.
CFA need to get educated as they don’t know the industry!!!!!!
Whilst perhaps well intentioned, the thoughts in this article are somewhat green in terms of how Australia’s financial services industry actually works. Yes advice models need to continue to ‘professionalise’ and this will eventually improve trust, but the following backdrop must be taken into account too:
• Customers aren’t used to, and therefore aren’t willing to pay full up-front fees for advice. They’ll tolerate a $5,000 “commission” out of their product, but very few customers will happily write a cheque for $5,000 for advice on its own. Most will only pay a few hundred for advice – that costs the adviser thousands to deliver
• Financial literacy is very low as it’s not taught at school. So the advice process is hard and dangerous to deliver: customers don’t understand the value of advice so don’t often seek it, and regulators require processes whereby the adviser must take on all the responsibility – effectively assuming the client is incapable yet will sue you if anything doesn’t go their way. Giving scaled (or focused) advice on a specific decision is fraught with professional risk for the adviser. “Caveat Veditor” means “let the seller beware” and this causes extremely inefficient business models.
• Australia has excessively complex and detailed tax and social security rules and product choices. Take super for example. Since the demise of defined benefit super funds all the risks and decisions for turning retirement capital into lifetime retirement income has been pushed to the individual members – who haven’t a clue how to do this safely.
Until this changes, only wealthy clients want to pay for advice. Becoming ‘professional’ too quickly will destroy the industry. Clients who aren’t already wealthy won’t get any help. We need:
• Compulsory financial education at school and also in the workplace at key ages/stages
• National campaigns (e.g. on the back of the Royal Commission) to explain to the public what good advice costs, what it entails and the value of it. If the government requires commissions to be dropped it also must educate the public on what good actually looks like including how you must now pay for it.
• Better products that don’t require so much advice and are chosen by employers and super funds on behalf of their employees/members – as they can afford to do the required due diligence on the products
@ Joe, the CFA institute is pretty much another irrelevant body good at marketing their designation. it’s a designation that requires very basic study. pass rates are managed to influence perception about how hard it is. but it is indeed a very basic test of your memorization spread over 3 levels with some response type questions in level 3. you would do much deeper study at a masters level, even some bachelors
this is a designation for desperate people in mostly underdeveloped countries (it’s cheap to acquire) not for people who have a masters degree
they tried to register a trademark in the UK but the uk authorities didn’t allow it because they actually don’t have a royal charter to be “a chartered body” and offer a Chartered designation (whatever special authority that gives you, it gives you nothing)
get lost CFA, go to Asia you are big there as they are desperate for your designation. we are happy with a non AQF rated CFP (r) here in australia and even the lousy FPA give you 1 credit.
I am most concerned by the deduction of investment management fees from superannuation accounts. Investment managers should be providing annual statements that model the impact of their fees on the final retirement savings of the underlying investor. It is unethical that the deduction of fees is occurring without “informed consent” by the investor. It is also unethical that investment managers charge asset based fees and it should instead be a flat fee. It is also unethical that investment managers have long mandates with superannuation funds. Mandates should be reviewed on an annual (opt in) basis.
The CFA can come up with 101 recommendations and do we give a toss. Ask the consumers do they like paying people like you in 6 minute blocks and charging $35 bucks to print off a email? Keep out of our industry and concentrate on your own as the consumers have little respect of your profession. Go look in the mirror 1st.
What the hell does the CFA have to do with the financial planning industry?
Jeff , what are you trying to say ,look at me ,I am great because I’m independent but I take commissions . I take a commission too for both risk and super etc , and I use that to service that client . ie that’s the way I like getting paid and the client prefers paying that way!!!! I am also under a dealer group / I like it that way because they provide support when I need it . It should be a choice with an opt out for grandfathered clients .
I run my own AFSL business with an open APL that is fee for service and has no affiliation with any product provider and does not get commissions from fundies or platforms – except for insurance coms. Yet I can’t use the words independent or non-affiliated thanks to ASIC’s interpretation of the Corps Act. No wonder the consumer is confused.
As usual the real story is glossed over and ignored.
Not one single adviser i have met is against the removal of “commissions” for investment products / advice. it is the cavalier attitude toward those affected by the immediate removal of this income stream without compensation that needs to be addressed .
15% of revenue will likely represent some employee’s wages, i guess we could sack a few workers to reduce our costs by 15% ? or the simple solution and the one which is staring everyone in the face is to buy the affected trails back.
Most advisers would love to get away from institutional AFSLs. The exodus is on ! I suggest grandfathered INVESTMEST commissions are an issue because younger advisers have, in good faith, paid for them to get started. The High Court will settle the matter, not panicky Liberal politicians seeking to be more Hayne than Shorten.
Im a new advice business owner, so grand fathering does not impact me. But i think what gets missed in this article, is that it is not so much advisers complaining about GF commissions being taken away, but that it is wiping value immediately away from advice businesses. This is the concern, not moving forward without GF comms.