In its submission to the PJC inquiry into adviser standards, the AFA warned that a number of developments may lead to a reduction in adviser numbers, including prospective financial planning students being scared off by recent media scrutiny of the industry.
“The recent avalanche of negative media coverage about financial advice will invariably impact upon the interest in pursuing a career in financial advice, or enrolling in a financial planning degree,” the submission states.
The lack of demand from prospective students is one of a number of concerns the AFA has raised about the push to introduce a degree minimum standard for advisers, which it argues cannot be achieved “in the short term”.
The submission states that that while the AFA “strongly supports an increase in education standards” that policymakers need to be wary of the potential fallout from hasty implementation of new requirements.
“We are concerned that if these changes are pushed too quickly that we will see a significant reduction in the number of practicing advisers,” the submission states.
“This reduction in the supply of advisers may also create a significant increase in the cost of advice placing it out of the reach of many Australians that desperately need it.”
In addition, the AFA argues that older advisers may leave the industry at a faster rate than they would have otherwise, which would add to a reduction in practitioner numbers.
In a similar vein to the AFA submission, 33-year veteran adviser Dean Evans has also written to the PJC inquiry asking that they consider an exemption to rising education standards for older advisers.
Mr Evans – who holds an economics degree from Sydney University including studies in pure mathematics – said the importance of work experience is often under-estimated.
“Advisers who have more than 20 years’ experience, and are still advising beyond age 60, are doing so because they have a commitment to loyal and trusting clients who have been exposed to the adviser during the best and worst of financial times,” Mr Evans wrote.
“Indeed, continuity of clients is the true litmus test.”
Finsia, by contrast, has argued that “grandfathering” should not be permitted for existing advisers, but that all practising advisers should have to meet new standards before a specified deadline.
Would new education standards lead to an adviser exodus? Have your say below
[quote name=”Leo”]Just because some clients who don’t proceed, or are more time intensive, are undercharged does this mean other clients should be overcharged??
A debate in itself.[/quote]
That’s the whole nature of insurance though Leo, you could go totally to fee for service but that would drive off those who could least afford to pay a fee and push them toward direct insurance underwritten at claim – not really ideal but yes you are right that is a debate worth having to see if their is a better way.
Most the damage of course is done by bad advisers who write the most business – basic. When listed shares rise sharply they get a speeding ticket “please explain”…maybe the same should apply for advisers who write stacks of new business. Dealer groups and product providers would have stats on that. Nip it in the bud. Don’t just keep creating more regulations and more costs.
Leo, potentially you are correct. But is a client going to pay us $1,500 to $3,000 to NOT receive a risk insurance policy as it does not proceed? Should we just bear the cost? Someone has to pay, should it be us? If it is us we have to make it up elsewhere otherwise the business is no more.
What about risk trails. Quite small in each and potentially argued as unearned. What about the colossal work with claims, do we then charge massive fees to someone who just lost a loved one, or do you aggregate the small trails to pay for the few claims you do get?
Insurance is a collective risk mechanism, you pay a comparatively small fee IN CASE a bad event happens, your house insurance costs $1,200 say, but if the house burns down you get $600k.
Why should the people whose house did not burn down pay any risk premium at all?
The idea you propose of overcharging is using a logic that frankly hasn’t considered the full spectrum of issues.
Just because some clients who don’t proceed, or are more time intensive, are undercharged does this mean other clients should be overcharged??
A debate in itself.
I am used to sensationalist, self interested and ridiculous comments from the industry fund network. Surprisingly on this issue I agree. ISN claim that the rush to education is how the insto’s are covering their blatant mismanagement and product flog mentality with some rubbish about education standards. They are correct.
The lack of a professional standards board that has teeth and willingness to use them is how you overcome unethical behaviour. More education is a rubbish idea to “solve this issue’. Insto’s can then re-focus on their sales channels for product while education services abound.
Greg Metcalf of ASIC also supports this view (more education), I wouldn’t worry about this normally but he runs the regulator. How little do ASIC understand about these issues????
With respect Jill, its not the premiums dollars payable for the insurance or the percentage the “salesman” you refer to is paid here – the VALUE of the policy is paramount. We can be paid anything from less than $100 to thousands for each client. Sometimes a client will lapse in year 1 and we are paid “$0”.Sometimes we go through many hours of work to have applications declined and be paid “$0”.
Each client deserves the same good standard of advice. There are many many factors that lead to a recommendation for certain coverage Jill.
If your daughter is coming to you for help with paying premiums, ($10k PA) will the mortgage be next? I shudder to think how much of your retirement savings you may need to dip into if she or her husband have a medical misfortune. Sympathetic parents help financially all the time, putting their retirement at risk, happens far too often I’m afraid. Can be avoided of course.
Jill,
The question to ask is does your son need the cover, has it been justified? The next question you then ask was it a broker that sought the most appropriate policies and the best possible prices or was it from someone tied to a big insto. Thirdly you need to ask what underwriting conditions needed to be overcome, both medically and financially. Lastly you need to ask will the adviser be there to be utterly swamped with paperwork come claim time.
Until these questions have been adequately answered to call someone “shonky” is completely inappropriate.
What you may also not know is had the adviser rebated the commission and charged a fee then your son would NOT have received the full benefit of the rebate in comparatively lower premiums and would have paid the adviser fee.
Implementing risk on behalf of clients is a very expensive business, until you understand the cost, you can’t assess the appropriateness of the revenue.
I do not work in the industry but run our SMSF. My daughter and son-in-law have asked for assistance this week as they are struggling to meet the insurance premiums (over $10,000) recommended by their Financial Adviser aka Insurance Salesman. His business retains 91.9% of the premium in the first year of my daughter’s insurance. Still some shonky operators out there.
Fully agree with Rob & these industry bodies constantly calling for higher education standards is really annoying me and everyone I know. What idiot would enter this industry with all this nonsense playing on top of everything else you need to succeed? The industries captains & spruikers of education are 100% to blame for this current demise & the future advisers that will leave the industriy in droves because of their self interest education selling.
Come on! Its not a lack of education causing the problem/s, new education standards will not lead to eradication of the rogue adviser, hes too WELL educated. Problem is, the number of rogue advisers is only small, better implementation of new scrutiny measures will impact to the good of the industry generally.
Rob, I cannot improve on your comments or agree anymore with you, i am in the same situation, i came into this business in August 1977, i have purchased four financial planning business’s and employed dozens upon dozens of employees in my time, i also have the same qualifications as you and my clients love me too, and i nearly forgot, i have not ever had one client complant or been associated with any ASIC requirements ever, Rob way too many lightweights having way too much to say about things they know little.
I agree with Rob.
This concept of NEW requirements does not take into account ongoing training of 30 hours per year as required. What are we doing this training for if it not to keep up with the myriad of changes every time we wake up in the morning. It also does not take into account additional “approved” courses we undertake by choice at our own cost.
Raise the bar by all means, we know you just will, but this will NOT deliver the desired outcomes you seek as the “integrity issues” are entrenched with the institutional requirements of their advisers, not those with open APL.
If older advisers leave the industry, its not loss of numbers of advisers that is the issue, its loss of those who have experience you CANNOT attain by “tertiary education”.
Think I’ll move to a Government Job and spend my overpaid paid – under delivery – no accountability days until retirement in La La Land !
I have 25 years experience in the Financial Planning Industry and the only qualification I have is what was available in the early 90′, the 8 Unit Diploma of Financial Planning. It is an insult to think that I would be required to do a degree in order to continue in the industry. Do Doctors or lawyers upgrade their qualifications on an ongoing basis?? Why should we be required to do so??. Clients don’t stick with you for 20 years+ If you don’t know what you are doing. FINSIA can taking a long walk off a short pier.