“There’s a tremendous bias against taking risks – everyone is trying to optimise their ass-covering.”
This quote from Tesla founder Elon Musk epitomises the financial advice industry.
Don’t get me wrong, I’m not saying it hasn’t achieved the desired outcome. It has made financial institutions the darling of the Western world economy, and its advisers, agents and representatives well remunerated for their work.
But, I believe what was once used as a way to corner the market behind ‘regulation’ will now be its demise. Why? The arguments for being an adviser are getting thinner every day. Let me explain.
You wouldn’t find many financial advisers who would disagree with me when I say giving good advice is harder than it needs to be. The financial advice industry is insanely over regulated – and the responsibility to uphold these regulations is ultimately placed at the feet of the adviser. Governments issue new laws, which are then interpreted by ASIC, who scare the dealer groups into creating a Frankenstein’s monster of the original intention.
Ultimately, the adviser is left with additional requirements that don’t fit what the government set out to do in the first place. But, I’m not telling you anything you don’t know here.
FOFA has changed a lot. A simple law came in that said no commissions from new investment products. That fixed 50 per cent of the issues right there. And theoretically, it should have reduced the compliance burden by 50 per cent. But it didn’t. In fact, there were additional compliance requirements. Neither to the benefit of the adviser or the client.
So what’s the issue here, what are the results, and what does it mean for financial advisers?
The issue is not unique. We’ve seen the battle between regulation and capitalism unfold repeatedly. But when FOFA came around, capitalism was delivered somewhat of a critical blow. Not enough to immediately kill financial advice as we know it, but enough for everyone to look around and say ‘the tides are changing’.
This change equates to no commissions from new investment products. Let that sink in. The bedrock of financial advice remuneration was cut off. Not entirely, most of the existing products will retain their commission status, but it’s now impossible to grow that part of the business. As I said, critical, but not enough to immediately kill.
Now the government is looking at insurance commissions. You know it, I know it, everyone knows it – they’re gone. Not today, not next year, but they are gone. And at that stage, the era of commissions would have ended.
None of this is new information. The writing has been on the wall for some time, and as a result many advisers have started becoming comfortable with charging fees directly to the client’s bank account. So all future remuneration being earned with no connection to a financial product at all. With commissions dying I see this becoming more and more the norm.
But then – and here is why I left financial advice – what’s the point in being an adviser? Once you are completely weaned off the commission teat so to speak – why put up with SoA’s, APL’s and every other three letter acronym advisers get berated over the head with every day? Financial advisers jump through a million hoops to give advice, but those hoops exist because of commissions from financial products.
Scott Pape, the Barefoot Investor, has created a fantastic business for himself without giving personal advice (though even he has an FSG). I’m not suggesting everyone has to create a multimillion-dollar financial education business – but he’s proof there is a market for it.
The term financial advice sits on the same trust spectrum as a politician. Compliance is going up. Commissions are drying up. Automation is knocking at the door. And the most searched term on YouTube is now ‘how to’. People don’t want things done for them anymore – they want to become more competent people. They want to learn. They want to improve. They want to feel self-reliant.
But people will still need help with their money. YouTube can only provide so much information. Silicon Valley failed at its first attempt to take over. And robots just aren’t as friendly as a familiar face. So what do I see for financial advisers over the next 10 years?
Big changes. And with each change, the less appealing it will be to work under the current compliance regime. I’m not saying what advisers do isn’t valuable – I know it is. What I’m saying is how that value is delivered needs to change. Either compliance backs off as conflicts and commissions subside, or expect more advisers to follow the same path I did and move out of the position all together.
Clayton Daniel is the author of Fund Your Ideal Lifestyle and a former financial adviser
A succinct article Clayton. Reading the comments, it seems that “Anonymous” misspelled their name. It should read “Anothingmouse”
So….
You claim that the bedrock of remuneration for your industry is a (conflicted) commission payment (which has been proven to be the cause of demise for many an investor). There’s problem number one.
You claim that over-regulation is making the industry less lucrative for advisers (because they now have to do an honest bit of work rather than feeding off the gravy train of free commission remuneration). There’s problem number two.
You hang your apparent demise on the fact that the last final source of (conflicted) remuneration, being insurance commissions (also free money for nothing) is about to be forbidden. There’s problem number three.
But ah, you also claim that this will create a shake up of the industry and get rid of (dodgy) advisers who rely on free money and don’t want to do a day of work. There’s the solution for problem 1, problem 2, problem 3, and the industry.
Short term pain (for the dodgy advisers), long term gain (for the industry as a profession).
I’ll take that.
Put your name to your comments, but i do not think you will have the guts to do that. And before you come back at me with “Is this too close to the grain” the answer is no as your facts are unsubstantiated, but I am more than happy to have a discussion with you on here under your real name, ANYTIME
Thanks for your contribution mate.
To ‘Anonymous’: Well, well, well, is this another life company exec writing in to stir the pot? Is it one of those ‘industry consultants’ with a vested interest in advisers charging fees and NOT taking commissions (just like the life company exec) or is it a ‘financial planner’ who charges fees but doesn’t have a clue what it is to help clients with proper risk insurance and be ADEQUATELY remunerated for his considerable effort? Doesn’t really matter I suppose as the person writing is too spineless to include their real name so anything said in the know-nothing comment should be taken with less than a grain of salt.
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Honestly, how much more is it possible for this creature to belittle itself by spouting in accuracies and nebulous phrases that reek of someone with a vested interest in removing commissions? Obviously someone who has had little to do with sitting with clients to procure facts enough to put a good insurance-based risk management plan in place for the good of an Australian family. Someone who obviously has no concern for the best interest of the client as the comments made contend that commission-based advisers (majority of risk advisers) should leave the industry.
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Only an uninformed observer, glorified industry ‘consultant’ or a life company shrill would suggest that pure risk advisers can offer their comprehensive service (research, consultation, implementation, ongoing service over decades and claims management) in a fee environment. Proven FACT: most clients won’t pay fees for insurance alone. Any goose that is incapable of understanding this should go and complete an application for a client, premiums $4,000p.a for example, then say oh, that’ll be $3,000 fee payable in 14 days. Client will walk away – obviously! Bizarre this STILL needs to be explained to some fools that have never paid attention through the past few years of FOFA et al.
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Mum’s and dad’s and many low-income workers cannot afford fees and would not pay them on principle after decades of ‘free’ service from insurance advisers, on commission – who could blame them. The comments selfishly made by this commenter are an example of two of many problems facing our once great industry – self interest and arrogance. Your comments denigrate all of the great insurance advisers who do all they can to mitigate Australia’s vast insurance coverage problem and look after their clients, for decades, with ONLY the client best interest at heart. You are a disgrace to our industry and should be ashamed of yourself, whomever you are. You have no place commenting with such drivel unless you are courageous enough to apply your name to your uninformed dribbling politico corporate-speak.
Your response was awesome and true. One wonders who the 2 are who gave you a thumbs down. Apart from my 28 years of experience writing business on needs and doing many claims, some very great examples come out regularly.
just the last 2 that come to mind. I received a call this week thanking me for making him retain his cover despite his business partners negative influence etc. So in October I flew across the nation to Cairns to meet with my distressed client and retain the business he had already in place. he had lost its value to him. In November he slipped off his boat whilst washing it. he has been paid $35,000 today and looks like months of claims to go. he is thankful for personal advice….very much. How would advisers handle that in the new world?
another of many. Man wanted to cancel his 460k of life cover 10/15. sat for a few hours. going from some cover to nil seemed to be not the thing to do (clients conclusion) despite he wanting to save 10 to $15,000 in premiums prior to turning 65. He forgot to get back to me and instruct me to cancel the policy. Dec, 2 months later, cancer of bile duct/liver. Passed in 2 months. he called me and after abusing my staff and then me on why we hadn’t cancelled his insurance to which I responded politely, that he hadn’t not returned and instructed me. The emotions that go through people at this time would be hard for many to understand. who knows how he got fun out of abusing me, however he soon apologised and then proceeded to share the hand he had been dealt. Got his cheque to hold on his second last day in this world. He smiled to hold it. 4 months before it wasn’t important as he felt his wife had enough.
December 16, may wanted to surrender his WOL contract. had sold his farm some years back and given the kids to much money and had nothing left. Was happy to cash it for $100,000 despite a heart attack some years back that seemed to be a false diagnosis. he was as fit as now, id asked him for a medical prior to cancelling and taking this cover back onto his own ledger which had no value anyhow. he responded that he was still fitter than ever at 76. We offered to cash the bonuses and give him $46,000 now and retain 100,000 life cover. he could still cancel the balance later. yes, he said finally, my wife is happier with that. paid him just before Christmas. Staff called back on return in January to ensure cheque had arrived. WIFE CONFIRMED YES. HE GETS OUT OF HOSPITAL TODAY FROM A SERIOUS HEART ATTACK.
Many of these covers are in place for many years. In any of the cases above, if I was charging fees or wanted to charge for apmts then it would not have happened. each one was wanting to cancel. In each case there would have been a great negative impact if I had not been involved. Two of the families would be looking for food.
My Anonymous, I hope some day you can be a good adviser but…….
……….You think fees are good? You haven’t worked in the industry then.
I cannot for the life of me see how this, well articulated accurate comment has received negative “thumbs up”. What Brian has stated is true and to the fact.
And, I also have to agree that those who fail to support their comments using pseudonym’s to hide their own personal names are either not confident to stand by their comments, or, linked to industry with vested interests. It smells of immaturity and cowardice.
So much compliance and bureaucratic RED TAPE, yet there are more than 155 investment products issued by banks or AFSLs either frozen or in liquidation with an approved PDS from ASIC. It’s time to abolish the AFSL system. It’s not working to protect investors.
AFSL system is faulty, and doesn’t work, but blame squarely put on advisers only. it must be embarrassing to fess up so they keep going with it
Yes I think advisers need to become self licensed or forming small pods of like minded advisers each being a responsible manager and do away with larger dealer groups with over 200 plus advisers. if you’ve got 200 plus advisers you’re going to have red tape.
Grandfathered commissions – for these clients no opt in and the gravy train keeps delivering. You service them (by giving advice that may benefit them), now you have opt in.
We went fee for service from the bank in 2003, and we are punished with FDS’s despite it showing on the clients own bank statement but if we keep an older commission client, no FDS!
So the legislation encourages you to NOT service the client. This is the idiocy of the current legislation and you are punished for “doing the right thing”.
Nice one Clayton…let’s make a deal…you keep pushing the boundary from outside the tent & I’ll stick around inside the tent and do the same thing… agree things need to be compliant to the letter of the law..too many people have lost too much to go back to the “cowboy model” that we’ve come from a decade ago.
But at the same time we need to have Financial Advice for those that don’t want to just Google “How To” and if compliance costs keep going up the cost to serve goes up and that prices out a huge bunch of Aussies that need help…
We need to continue to pressure ASIC to push the cost of keeping the dodgy’s out to the dodgy’s themselves… in bigger penalties etc…
Because whilst you chose to leave we don’t want any advisers leaving because they just couldn’t afford to operate anymore….
Succinct as always my friend. I’ll take that deal.
Nice one mate.
Whats funny about all of this is that the folks coming up with all of the BS, no I did not mean Bill Shorten,
are the same fools that gave this country a huge deficit and debt ( Labor and now Libs ), whose short sighted vision has been nothing but a disaster, Just ask any pensioner whose pensions are cut, aged care recipient who has to pay more, worker who for working harder pays more or even someone who saves via super or otherwise. Yes, these geniuses in Canberra tell us advisers how we must act in the best interest of our clients but they do not act in the best interest of the nation. While sipping champagne watching fireworks on New Years Eve or buying that property in Qld on the taxpayers purse…of course its official business. Is that conflicted remuneration? Are they acting in the best interest of their clients, the taxpayer of the country? I am sick of advisers being kicked at every turn with compliance costs higher than ever before while our businesses and clients pay a significant price for the incompetence that is in Canberra and every state government.. Shame as most advisers can teach these fools in Canberra and government ministers in general of any persuasion some simple rules, like don’t spend what you have not got, watch that issue of debt so that you and your family will be okay. Plan for the future. Pity the adviser that dares to do there job in the interest of the client. Pity….
Interesting that you blame politicians for giving the country a huge deficit, yet in the next breath you complain about pensions being cut.
A large part of the reason we have a huge deficit is the incredibly generous age pension scheme. And it will only continue getting worse. The age pension is supposed to be a welfare safety net, not a financial reward for getting old. Yet it is readily available to people living in multi million dollar homes with hundreds of thousands of dollars in other assets. The age pension has been going up and up for a very long time. Thanks to political expediency/cowardice it is indexed at a rate higher than inflation. The only attempt I can remember to rein in this runaway train was the recent attempt by Scott Morrison to tighten the means test for those recipients with very large amounts of assets outside their family home. Yet even this modest attempt was opposed by hypocritical, political, BS. (And I do mean Bill Shorten).
Responsible financial advisers should be helping and encouraging their clients to support themselves without reliance on the age pension, rather than fanning the flames of an unsustainable entitlement mentality.
whoa….. you wild one, you better consider reliance on the age pension in your SOA though or you risk being banned by ASIC. the age pension is not going to be around in the same form that it is currently, it cannot, it is not affordable. this is the stupid sort of logic this regulator uses.
It’s all true and the fact of FOFA is that investment orientated FP books are MASSIVELY overvalued at the moment. Valuations will fall to the same range as law firms and accounting practices (0.7x to 1x revenue). However, there are huge opportunities for those that can sell their time effectively. People do still want advice and I disagree with the idea that more people just want to do it themselves. What they want to do is read about it and hope the problem takes care of itself. More choice just creates choice paralysis and good service goes a long way. Service industries are exploding, those that can deliver clear value and simplify the complex will continue to do well into the future.
Compliance is an absolute nightmare this is also true. So the challenge is there for licensees – the law is removing the conflicts that drive poor outcomes – time to revisit your service offer and requirements for practices that are not so conflicted!
Yes the only winners with FoFA are compliance staff. A booming industry. An issue is that dealer groups haven’t moved with FOFA. Advisers have changed and been forced to adapt with compliance, fund managers have changed even with cut backs to BDM etc but your average dealer group is still living in the eighties thinking all advisers need is a PD day and all will be right. The law with best interest forces additional legal obligations onto the the adviser but dealer groups have not changed from the 80’s and just added more red tape on top of the existing red tap.
Compliance – the new booming industry….
The industry as we currently know it will change, my doctorate is on “Fin-tech/innovation and the effect on financial services”, and all i can say, from my research and being an adviser right now, is start to review your model for the change that is occurring now.
Real Estate is burying its head in the sand, but they are under threat from Purplebricks, and that model will have an effect on the multi thousand $$$ commissions for little work. Just one more example.
I feel commission in insurance will remain, they may call it something else, but the insurance companies need an agent out there for them, how else can it work?
20 years ago it was an exciting industry, yes i was brought up in insurance and got really excited about the big sale or complex buy/sell, but now I’m afraid we all have to look at other ways of making our business worthwhile, or end up doing twice as much work (and compliance) for half the money.
Stephen, your doctorate sounds very interesting. Would you have time to discuss?
Sure Clayton, 0419781200
at last someone with a commonsense approach
Very good article in relation to the compliance regime (more so than the commission statements) and backs up my statement to a university lecturer last week that I personally would not be recommending this profession as a long term option to an 18 year old looking to complete a university degree. This is very disappointing when you consider the obvious need for quality advice in this country. The worst part is that the people drafting and implementing the rules realistically have no idea how the advice process works so the continued inability of the compliance system to protect those at risk of poor advice whilst being costly to follow will continue.
…and yet this is now the minimum requirement going forwards. My daughter of 13 has an aptitude for financial planning. There is NO WAY that I,as a loving parent, would encourage or recommend that she becomes a financial adviser in the current climate. I do get asked many times by clients if I would talk to their children about a career in financial planning. I politely decline and confirm I wouldn’t encourage my own child in this direction. If I had to do it all again….
I haven’t been quite so drastic, I will move back from the coal face of advice. after 33 years I am at the point where I really cannot be bothered to “Up-skill” at my age, and as such will be restructuring and looking at my succession plans more closely. I agree strongly with the assertion that the advice regulatory world has gone mad, and I suspect the headlong rush by our politicians and regulator will be another case of throwing the baby out with the bathwater. I can see at some point in the future (like the UK experiment) a winding back of much of the changes. but it will take time.
as for commissions, I am unsure about that, I suspect Life companies will want to retain them, otherwise where does the “impact” on clients through so called “Churning” appear, if there isn’t any commission?
Great article, and I agree. Legislation and compliance is over the top, and not actually protecting consumers. A full review of the system from the ground up is required. Consumer protection is absolutely required, but what we have in place is not doing that.
Perfectly articulated. Consumer protection is not what the FP compliance regime currently is.
Well said. Compliance is a blind monster that serves no-one. The big dealer groups think it will protect them (it won’t as the Courts don’t care about your templated disclaimers), advisers have to wade through it like it’s quicksand and the clients wonder why they have to sign so much confusing paperwork. Scott Pape actually criticised advisers for their lengthy SOAs, as if the adviser wants to hand these wads of paper out. Compliance is working against the aim of full disclosure. It only clouds the important information, but I get the feeling some would prefer it that way.
See you on the other side mate! I can’t wait to read the book.
Cheers mate!