In a blog forecasting the future of small AFSL practices over the next two to five years, Retirewell Financial Planning director and principal Tony Gillett highlighted the disproportionate costs smaller licensees will have to bear in servicing advisers compared to larger licensees.
“You couldn’t blame anyone from wondering why any sane person, based on a risk/reward assessment within such an unfriendly business environment, would want to be the principal of a small AFSL, given that the risk/return assessment is clearly suboptimal,” Mr Gillett said.
“There is also no doubt that many AFSL principals are seriously underpricing the cost of providing an authority to their representatives. A recent estimate of the cost to the AFS licensee to service an adviser was $38,000 to 45,000 per adviser. One aligned AFSL quoted $70,000.”
Increasing costs for advice practices
Mr Gillett laid out the areas of running an advice practice where costs will increase or already have increased.
Some of the more notable areas where costs would increase, according to Mr Gillett, include Tax Practitioner Board registrations, estimated at $1,600 compared to nil a couple of years ago.
Other big-ticket items cited by Mr Gillett included PI insurance, which costs small AFSL $40,000 per year, plus a week to prepare the submission, as well as additional costs for client renewals as was recommended by the Hayne royal commission, which he estimates could range between $20,000 and $40,000 per year.
“Implementing this new requirement for the re-signing each year of an annual service contract will cause significant additional and unnecessary costs to small AFSL businesses, which, in many cases, are difficult to pass on,” Mr Gillett said.
“All clients are already provided with a Fee Disclosure Statement (FDS) every year, telling the client what services have (and have not) been provided and what fees have been paid.
“As well, all post-2013 clients already have to sign an Opt-In Agreement every two years – that is, they must agree in writing to continue receiving the advice services provided, and to continue paying advice fees.”
Uncertainty around ‘compliant’ advice
In addition, Mr Gillett said most AFSL principals are under a great deal of uncertainty as to exactly what is needed to provide “compliant” advice.
In particular, he said there is continuing uncertainty about what must be put into a Statement of Advice (SOA) and what can be left out and still be compliant — or whether the lesser Record of Advice document will suffice.
Mr Gillett added that there are now serious suggestions that the seven “safe harbour provisions” — that when satisfied within an SOA can provide some element of protection for the adviser — are going to be removed.
As part of efforts from the regulators to protect the consumer, Mr Gillett said they have instead created a hugely complex environment of great uncertainty around the provision of “compliant advice”.
“Even the most experienced of planners worry that their 30- to 50-page Statement of Advice, which has taken a week and 10 to 20 hours to produce, will be found wanting, because they have unwittingly failed to tick all the necessary regulatory boxes, to provide a compliant SOA,” Mr Gillett said.
“This obsession with compliance, and the uncertainty which surrounds it, is a blight on the delivery of financial planning advice by sensible advisers to sensible Australians. It should be called out for the nonsense situation that has evolved.
“It has created a thriving, expensive, nit-picking industry in compliance management and provided a happy hunting ground for litigation lawyers. It’s time to introduce some common sense to standards of written advice to lower the costs of providing advice.”
[quote=Graham Wilkinson – AFSL holder]The Accounting profession should never have lost the right to give Investment Advice and it should be returned. Now ASIC , PI and administration costs will force the independent sole trader investment advisor/Accountant out of business. [/quote][quote=Graham Wilkinson – AFSL holder]The Accounting profession should never have lost the right to give Investment Advice and it should be returned. Now ASIC , PI and administration costs will force the independent sole trader investment advisor/Accountant out of business. [/quote]
Graham, Accountants are to investment advice what GP’s are to Surgeons. Sure, you can diagnose a cough or a cold but unless you can explain to me sharpe ratios, the relationship between bonds, yields, duration, volatility and their interplay in a lowering rate environment as well as differing equity manager styles, then sit down and let investment professionals take it from here. Go and shoehorn someone else into an SMSF.
Well said Tony . One of the best summaries I have read on our industry today . I am not renewing my FPA professional practice or my CFP subscriptions , nor my Finsia Subs , nor my other stuff . Look out – Kaplan , Iress and other FIn Techs have an agenda to use their power to charge everyone fees for this and that going forward .Watch this space !!!
WOW! YES! Go Tony Gillett! Those last 3 paragraphs should be force fed down the throats of ASIC, FPA, a lot of the AFSLs and politicians et al. How profound, common-sensical and apt. Why are the humans that run this industry so thick they don’t know this alread or if some do why don’t they act upon it., maybe, like the universities and FASEA fraud, maybe the compliance nonsense simply creates a little mini-industry within financial services that employs these creatures that thrive on creating this idiot over-compliance regime that is causing so much industry damage and acting so much against client best intertest. I’m going back to the article now, to read those final 3 paragraphs again – a few times – as I doin’t get to read much common sense these days. Thanks again Tony Gillett (incidentally, are you Jim Gillette’s son?)
I wonder how thick the SOA’s will be for ASIC staff to go through now their defult fund has been changed to AustralianSuper.
We have ZERO power to influence/lobby or get some semblance of compliance sanity. The (minority) weight of horror stories far outweighs and good ones ATM. We’re stuffed!
Some of THE worst financial advice I’ve seen has come from accountants – and I am one.
Great article and fantastic comments by readers, all true. The only way we are going to get out of this mess is if those of us that remain engage the politicians continuously to point out how insane this process has become. If the politicians don’t take heed of our feedback then at least we can say we have tried. Right now I’m not sure what message the politicians are getting about the mess from the bodies who claim to represent us?
Perhaps appropriately qualified accountants. Having worked with one of the major accounting firms and left the profession years ago I find the level of knowledge and standard of accounting work provided to most clients as mediocre. Thank god these clowns are not providing advice. Stick to your record keeping role.
The Accounting profession should never have lost the right to give Investment Advice and it should be returned. Now ASIC , PI and administration costs will force the independent sole trader investment advisor/Accountant out of business.
After 15+ years of service to this industry, I have decided that the juice is no longer worth the squeeze and will be exiting in 2021. What sane person would work in a business that is constantly targeted by the government, has 100% bias against the people who work in it, not to mention that you also involuntarily become the whipping-boy for regulators, lawyers and tabloids, have sleepless nights wondering when the AUDITOR gestapo’s are going to come knocking, worry that you will be dobbed into the regulator by your own licensee, colleague or customer then work under a law that allows the government to prosecute you for not taking “any other step reasonable” with the Best Interests Duty? Then add the costs of compliance, PI Insurance, defending pathetic Ombudsman complaints and now higher education standards and a national exam?? I mean, does even a politician have to go through all of this when they’re the clowns making all the rules!
Well said Tony, summed up the situation concisely. While successive Governments & through them the Regulators, have voiced their concerns of advice being available to many Australians, their actions have now “costed” it to the point where Advice is the preserve of wealthier Australians. The ongoing politicization of our Retirement Incomes policy has “thrown the baby out with the bathwater” and the aim has been sadly distorted and lost sight of.
Common sense has no chance against institutional leftist ideology.
ASIC’s paradigm is that Australian’s are unintelligent, passive and weak and have no ability to discern good from bad and need the maximum protection possible of the law from the self interested, malintentioned and dangerous professional financial class.
[i]”why any sane person, based on a risk/reward assessment within such an unfriendly business environment, would want to be the principal of a small AFSL, given that the risk/return assessment is clearly suboptimal,”[/i][i][/i]
I couldn’t agree more.
It’s dangerous territory when the government and the legal profession are making the decisions on what consumers want. I’m yet to meet a client who is happy to more or less decide what they want to do, then have to wait several weeks to come back so it can all be typed up in an intimidatingly long document that repeats the same things over and over and then endure ridiculously long review appointments that must be held before day 365 no matter the circumstances to cover off every conceivable thing that could happen to them or their family over the rest of their life. If the medical profession had the same compliance obligations as us, we’d have had 100 people around Australia having had the flu shot so far, 5,000,000 more waiting on their paperwork to get it done and 100,000 having died from it in the meantime…all in their best interests!!
Operating under a major AFSL’s compliance regimes…the SOA isn’t the problem, it’s the ”supporting documentation” required. The demands from compliance are entirely unworkable and result in a confusing and lengthy client experience. The level of detail required in meeting notes and file notes have blown out to the point where an adviser is barely providing the advice any more. It’s all about documenting ‘discussions with the client’ and agreeing on what product features they ‘need’…..so we are supposed to educate the client in a matter of a couple of hours, the various features available for a particular type of financial product, agree on required features with them, repeatedly warning them about the cost, benefits and risks of each feature, and then document it in a massive, detailed meeting note. THEN do the background research and document that on file, and THEN send it to paraplanning.
All the above has to happen before we even present an SOA, let alone proceed to implementation.
The above may sound reasonable in theory, but when you’re dealing with insurance advice for example, why are we relying on the client to understand or know what ‘features’ they need? These clients have never experienced a claim, and before they meet with us, had close to ZERO knowledge of how personal insurance works. They are paying us to tell them what is suitable!!
….” is a blight on the delivery of financial planning advice by sensible advisers to sensible Australians. It should be called out for the nonsense situation that has evolved.”
Absolutely 100% correct. I recently had a client tell me it was ‘bloody easier to kill someone than update his super and insurance situation’.
This will assist the industry in delivering affordable advice to the public.
Yep… great outcomes for consumers.
What he said !!!!!