Speaking at the 2018 Wraps, Platforms and Masterfunds conference organised by ifa sister title InvestorDaily, The Fold Legal senior associate Simon Carrodus said vertically integrated models, such as intra-fund advice, can benefit consumers.
“I like the idea of intra-fund advice. We can give some advice at low or no cost on the specific product that you’re already in – you’re not asking for advice on which product, you’re asking for advice inside this product,” he said.
“I think there will always be a place for a vertically integrated advice model, and without it we’d have a real problem with access to advice.”
Mr Carrodus said the lower cost of advice provided under a vertically integrated model was a positive for clients, but acknowledged that advisers in these models should be required to “declare upfront their bias”.
The banking royal commission will turn its attention to superannuation and intra-fund advice next week, which ifa will be covering in a live blog commencing on Monday.
Update: Mr Carrodus has since clarified his remarks, noting that vertically integrated businesses “made their own bed with numerous failures over many years” and a better model is needed to protect clients’ interests, but complete separation of product advice and distribution may reduce the afforsability of advice to “most Australians”.
“I completely understand the calls for separation of product and advice. I am not opposed to it. But we have to figure out a way to ensure that financial advice remains affordable for most Australians, rather than being reserved for high net worth clients only,” he said.
“Intra-fund advice helps with access to advice but it is a limited service, not a complete solution. Where intra-fund advice is provided, there is a conflict between the interests of the adviser/fund and the interests of the client. For this reason, intra-fund advisers are not allowed to advise clients on their choice of product.”
Hello everybody. Simon Carrodus here.
I thank you all for your comments and vigorous debate. This level of engagement can only be good for our industry. However I feel that my comments have been taken out of context, so allow me to shed some more light.
I gave a 45 minute presentation last Thursday, almost all of which was dedicated to calling out the numerous failings of vertically-integrated organisations over many years. I had 21 slides in my presentation, and only one slide was dedicated to the potential advantages of vertical integration (as acknowledged by ASIC in Report 562).
I was actually worried that I was being too negative about vertical integration. In my introduction I described Vertical Integration as “the two dirtiest words in the financial services industry”.
I dedicated one slide to telling advisers to “just say no” to in-house product recommendations in certain situations, and another slide to telling vertically-integrated product providers to lift their game.
I spent most of the presentation talking about what the law is today, how best to comply with it and where most advisers go wrong. I didn’t spend any time talking about what the law should be – this only came up in question time at the end.
I completely understand the calls for separation of product and advice. I am not opposed to it. But we have to figure out a way to ensure that financial advice remains affordable for most Australians, rather than being reserved for high net worth clients only.
Intra-fund advice does help to solve the access problem, but it is not a complete solution. Nor is it is a substitute for comprehensive financial advice.
Where intra-fund advice is provided, there is a conflict between the interests of the adviser/fund and the interests of the client. For this reason, intra-fund advisers are not allowed to advise clients on their choice of product. Perhaps all advice provided under a vertically-integrated model should be limited this way? This would prevent advisers from switching clients into in-house products and platforms, which was one of the problems identified in ASIC Report 562.
Vertically-integrated organisations have made their own bed with numerous failures over many years. In that sense, the old model of vertical integration is broken. As an industry, we need to commit to building a better model that puts clients’ interests first and provides more Australians with access to affordable, high-quality financial advice when they need it.
Thank you for taking the time to read this. I am happy to cop criticism for my views, but first I want to ensure my views are properly understood.
Simon
I wonder how intra fund advice for insurance within an industry fund can benefit members – especially when their claim is denied because of poor definitions etc.
Just look at the political machine at work… Labor and Industry Funds are the masters of this.. all they want is to squash any competition under the disguise of low cost intra fund advice… Wake up to yourselves
It’s really sad that all we have had out of the RC and the proposed FASEA reforms is advisers turning on advisers all because some have less qualifications than others or some still receive commissions vs fees. Many of the IFA comment pages are filled with vitriol from advisers who differ right or wrong, with blanket statements often without considering the technicalities of the arguments they are trying to make. If this is what the objective of reform is, then what a sad and shameful outcome. Infighting will do nothing to improve outcomes for our clients. It’s time to pull together, find a workable solution and stop the criticism of each other as all it is doing is telling the public that the advice industry is not worthy of their trust or respect.
OMG did he really say this bull !!!!!
LOL to your comment ‘Anonymous’.
I’m an IFA as well and I am embarrassed of what our burgeoning profession has been put through thanks to the behaviour and misaligned culture of banks and the impact it has had on our industry and the Australian people.
You could argue the Banks have definitely reduced the under insurance problem in Australia perhaps even made some people money, however, there are more arguments against the damage they had done to the consumer and industry as a whole. I’d suggest you check into rehab for your own ‘reality check’.
Putting aside the consumer and their access to advice, the banks role is lending and deposits….they should stick to what they know!
Agree, I attended a retirement conference in the US last year and they clearly stated over there that banks have no role to play in financial planning and never have. The current exodus from Wells Fargo confirms the move away from banks back into pure financial planning world. That said, banks have had a massive impact on the under-insurance problem in Australia and do hope that continues in some way, shape or form.
Giving advice that is limited to what’s inside the product and ignoring what is going on outside the product in the life of the client is the biggest problem.
The client pays next to nothing, they get very limited advice and therefore very limited value. The consumer runs the risk of getting bad advice because it’s limited and it comes at the cost of having a real financial plan in place – which you’ll get form a real financial planner.
It’s access to what Simon calls advice, but not valuable advice.
If money can’t be made on the advice side it has to be made somewhere else, inside the product. The advisor still needs to be paid somehow.
just asking…where does acting in the clients Best Interests come into play here with intra fund advice? Can we just have one set of rules everyone has to play by and not one set of rules for call centres and one set for advisers. That may go along way to helping the industry.
Exactly. How are general advice sales reps able to “recommend” the same investments/insurances as advisers without training education or regulation. All financial advice provided by a human must be done through a qualified adviser who is required to act in the best interests of the client. This includes sales staff throughout the whole initial sales process. General Advice should only be accessable in printed form.
Why would anyone want to provide financial advice (especially for insurance) when you can give general advice without the hastle of compliance and the BID.
At least remove commissions for insurance sold under General Advice.
Advice not on which product, but advice on this product ?
Isn’t that still advice Simon?
Where does Best Interest Duty come into that one?…or are you saying it doesn’t matter in regard to advice provided on ” this product” when it comes to questions from a member about Superannuation Contribution types, amounts and strategy, Investment Options and risk profiling, Beneficiary nomination advice, pre-retirement planning and Transition to Retirement Pension options, insurance types, costs and definitions of these inside the fund ?
How utterly ridiculous.
no think that is more general information not really advice, what if it is not in the clients best interest to have monies in super due to Estate equalisation what do industry fund advisers do then?
Tell the client it would be in their best interest to take funds out of the in house product, don’ think so.
Every business requires a sufficient margin to operate. The solvency laws require it.
Free plumbers , Free sparkies ……….seriously !!
What an absolute bucket of vacuous piffle.
I wonder if “senior associate simon” has his own superannuation invested with an industry fund
“run only for the benefit of our members”….. oh, and our close friends and partners, the trade unions !!
i would like to know what benefit the members of host plus get from the major sponsorship of Melbourne Storm??
OK Mr ex ASIC Lawyer, so Intra Fund Advice is fine for an existing product and how far does that go ?
Your Intra Fund advice can tell someone to close another super (maybe with Life insurance) and roll into the Intra Fund Advice super with zero investigation and thought of the product being closed and zero AFSL compliance ?
I get banned if i do that in real AFSL advice world.
And what about moving from Super to Super Pension – is it within the same product ? not according to AFSL laws it’s not. But i’m sure that seems fine for Intra Fund Advice.
And then the coming CIPR’s, sure that will be fine for Intra Fund Advice to have a phone jokey adviser with almost zero experience, vertically integrated conflicts of interest flog a Lifetime locked up Super Income Stream, with zero AFSL compliance, no mention of estate consequences, etc. But hey it’s Intra Fund Advice and it’s cheap.
ASIC keep making real AFSL advice more and more costly with crazy over the top regulation and red tape. And then somehow think conflicted, vertical integrated Intra Fund Advice is the solution.
[b]ASIC – how about reducing the red tape for real advice and that will reduce the costs.
ASIC how about getting rid of vertical integration and that allows soooooooooooooooooo much of the rubbish red tape regulation advisers deal with to be removed. [/b]
Also, ASIC how about consulting Financial Planners on what they think would work best for the client.
[quote=Anonymous]Utter rubbish Reality. Most would have no clue or access to anything except bank accounts and the horrid misrepresented ISA funds otherwise, and be vastly under insured. I’m an IFA self licensed btw but recognise the role the insto’s play, Suggest you get a reality check yourself.[/quote]
Totally agree with the article. We don’t all attend just public schools or just private schools, likewise private or public hospitals, doctors etc. We have choice in so many other various areas provided by either institutions or else private providers – it all depends on the role they play.
The simplest way out of the current debacle is differing designations that make it clear what type of adviser you are consulting, but that is too simple for all the vested conflicted self interests out there, including the politicians themselves who unfortunately make the rules.
Our private financial wealth industry is going the same way as all other industries in Australia, such as manufacturing and agriculture, which is over regulated and inaccessible unless you are a big big player with only utter self interest at heart.
Unfortunately we vote for politicians nowadays, not the statesmen of old that looked at the good of the country, not the next election. Public servants have always been little more than vermin.
There should be always scope for someone to walk into Toyota and be sold a Toyota….but the problem with the advice world is that the Toyota salesman is masquerading as giving full advice and is actually given a competitive advantage by legislation. Furthermore, there are some pretending to sell Mazda, Toyota and Ford…and they are all wonderful advisers… but Ford being the home team creates a false environment that Ford is truly the best.
Perhaps we adopt the UK Term of Unrestricted Adviser and Restricted tied Adviser.
How about be hones….SALESMAN
Lets call it what it is, and its not advice, “Intrafund Advice” is not advice, its a product retention program, or its a sales team. The sooner this whole farce is outed the better, and the sooner there can be clear delineation between product agnostic Advice vs declared aligned product Sales so that consumers and everyone else can make an informed decision on who to deal with.
I’d rather accept the risk of negligent (but honest) advice than the certainty of conflicted advice inherent in the vertically integrated model.
I agree there is potential for the product to be aligned but the advice can still be independent. It’s always the strategy that gets outcomes, not the cheapest product.
When I was at one of the big banks the advice fees were not cheaper than non bank planners. In fact I once saw a plan fee of $40,000 for a lotto winner because they used a percentage advice fee model. That is ridiculous!!
Must have been at Westpac.
I agree a $40k fee is ridiculous fee but for a $700k investment a fee of $26k is massive and I don’t believe any planner would charge that and ASIC would be on top of that. Yet it happens all the time with stamp duty when buying a house, yet nothing is done about it…….
Well said David, not to mention the amount of developers that pay property spruikers 20 – 50k commissions for each of their properties they sell!
Not that I agree SOA plan fees should be charged on a % basis, ours are all set fee.
If that person shopped around, they would have got a much better deal. So I don’t have a lot of sympathy. Financial advice is a very competitive environment. But in the future, that sort of outrageous charging will become the norm. Costs are going through the roof, certainty of income is being taken away from us and competition will probably be decimated with FASEA and the RC etc. So if you don’t like big fat ‘plan fees’, look away now!
so by not paying for quality advice the consumer is allowed to stay in an expensive over priced industry fund how is that better? As an adviser it is possible to do better then the industry fund pricing always saving clients $$$ over the years leading into retirement, if advisers are able to build into their business a model that works for lost cost advice then we no longer have to leave vulnerable people to be taken advantage of losing more then needed over many years.
Lol, The lobby group is out and about. The less conflict the better.
Managed accounts are the current flavour of the month. If there could be no conflicted payments, i wonder how many managed accounts would exist.
Platforms who have benefited from such cant be seen as the experts on this topic.
But alas, lets just focus on the individual adviser, and the corps continue to collect.
Yeah but its access to low quality advice… More akin to product flogging. Consumers would be better off without that ‘extra access’.
Utter rubbish Reality. Most would have no clue or access to anything except bank accounts and the horrid misrepresented ISA funds otherwise, and be vastly under insured. I’m an IFA self licensed btw but recognise the role the insto’s play, Suggest you get a reality check yourself.
I agree in some instances. I’ve just come across from the ‘dark side’ and can think of countless people I’ve helped with fairly straight forward scaled advice at absolute minimal cost (with no doubt they are in a much better position) that would be much harder to swallow as a business owner. You can’t charge everyone thousands for holistic advice. More broadly however, vertical integration is also causing a lot of our current problems.
Your comment reminds me of the commission days. i.e I just helped someone in return for an ongoing trailing commission of $19.58 a year. Unfortunately we are today seen as evil and turned these souls away.
Agree. Rubbish comment.