Xplore Wealth chief executive Mike Wright told ifa the government’s draft legislation around recommendation 2.1 on ongoing advice, further guidance around which was released by ASIC last week, was an understandable source of frustration for advisers given the practical implementations of asking clients to opt in to ongoing fees annually.
“There’s a lot of complexity that feels impractical – having come from BT where we moved from biannual to annual [opt-ins], I saw first-hand that unfortunately some clients won’t be in a position to catch up on their anniversary,” Mr Wright said.
“You’ve got 60 days after the anniversary to have the renewal provided and 30 days for the client to sign, and if that isn’t signed you turn off the ongoing advice fees and all of a sudden your anniversary date starts on a different date. Practically this is a real concern for advice businesses in terms of how they manage that in their systems and processes.”
Mr Wright said given the pressure on the industry following the royal commission and scandals involving fees for no service at the big institutions, the implementation of the report’s recommendations had become “political” rather than practical.
“As the industry has engaged regulators and government, reading between the lines I don’t think people feel they are being heard in relation to the practical difficulties, but maybe that will change in the near future,” he said.
“Fee for service has become much more of a political issue, and maybe that is not unreasonable considering the amount of money refunded on fee for no service to clients during the royal commission.”
Mr Wright said his previous experience as general manager at BT Financial Advice, which had implemented annual opt-ins for clients following FOFA, had revealed difficulties in managing the policy across the board as certain client groups would never be available on the anniversary of their adviser relationship.
“One of the insights I learned from that was the 80-20 rule, so 80 per cent of clients will be in a position to catch up on their anniversary and 20 per cent won’t be, often for their own reasons – they may be overseas or they just feel like they’ve had enough reviews, so you have this challenge of managing this forever moving anniversary,” he said.
“We had clients say ‘I want the adviser relationship, I want [the fees] turned on but I just haven’t got to it yet’. Clients were trying to honour and respect the intent of the arrangement but they are imperfect in the sense that everyone’s individual, so that was quite difficult within an annual construct.”
I’m just hoping a few ex-advisers will run for parliament. Wouldn’t it be great to have some discretion over ASIC.
We’re not being heard because those representing planners are getting payments from institutions found wanting at a Royal Commission. We’re not being heard because the CEO of the FPA is still the same guy that appeared at the Royal Commission and Chief Justice Haynes said “they’re not capable of being a code monitoring body”. CPA Australia and the Institute of Chartered Accountants do not get payments from Zero or Reckon. The Australian Medical Association (AMA) does not get payments from Phifzer or any other drug firm. Yet the FPA gets $100K a year from CBA and AMP etc etc. If you keep doing the same thing, year after year, and expecting the same result you’re an idiot. Time for a change. Sack Dante DeGori and get rid of the Professional Partner Program.
The purpose of the government’s legislative response to the royal commission recommendations around annual fee opt-ins for adviser clients is deliberate to harm advisers and clients, given a proportion of clients will never be able to opt in during the specified time.
FTFY
Isn’t this the whole point. If they can’t opt in, it is probably because you won’t be seeing them……why do you charge them?
I have seen clients be turned off for not opting to in by a desired date after being told by letter and phone that they had too. Clients response when told this was very angry and basically told how dare we treat them like children. And we have been changing over to annual opt ins well before being told too.
What an ignorant response. Is your name Hayne perhaps?
The advice model where clients religiously come in to the adviser’s office every 12 months like clockwork, and sign a swathe of bureaucratic forms while they’re there, simply doesn’t apply in many cases.
Lots of clients are quite happy to pay ongoing fees so that their adviser monitors their situation and alerts them when something important happens, but doesn’t annoy them with irrelevant commentary the rest of the time. They are quite happy to pay ongoing fees so they can contact their adviser when they have questions or concerns, but don’t have to pay fiddly invoices for every 10 min phone call or email. They are quite happy to pay ongoing fees that include an annual review, but don’t want to be forced to have one at a time that’s inconvenient to them. Sometimes this will mean 15 months between reviews, sometimes it will be 9.
When they do have annual reviews, they will sometimes want to do it via phone or videoconference rather than coming into the office. Unfortunately that means the adviser can’t lock the door and force them to sign all the bureaucratic forms before leaving. In that situation forms have to be emailed, and it’s in the hands of the client how quickly they return them. This is often complicated by the client’s access/skill with technology. But it is also complicated by client reluctance and resentment about wasting their time signing useless bureaucratic forms!
This whole argument about Opt-In being a simple process with no administrative overhead, because engaged clients will always happily sign forms when they come in like clockwork for their annual review, is based on extremely narrow thinking and outdated engagement models. It will not work in practice, and will lead to many ongoing services being forcibly terminated contrary to the client’s preference. Then again, that’s probably the real intention.
It’s time to cut the BS. I have it on good authority that the government is soiling itself over the Hayne recommendations & is determined to implement them all, come hell or high water. It’s does matter to them that they are impractical, cost inefficient and will lead to less people engaging advisers…particularly those in the lower socio-economic groups. Poor Jane Hume understands this completely & would like to make the sensible changes the industry has been requesting. However, as she has explained to various industry representatives on many occasions, she is only a junior minister and the push is coming from the top…and they don’t care about us advisers…it’s all about being seen to do something. Of course, this is manna from heaven for ASIC, who are also very keen to be seen as the tough guys on the beat since the belting they received from Hayne. ASIC know that most of the issues will be sorted now that the diabolical banks are bailing out of wealth management & advice faster that the Millennium Falcon did the Kessel run, but they don’t care either. They are a bunch of lawyers, mostly under 30-35, who have no idea about what advisers really do for the clients and the costs associated with doing it. They have it in the heads that advisers are on this fee for no service gravy train, spending most of their time swanning about the place collecting fees for doing nothing.
Unfortunately, this view is unlikely to change, which means that many great advisers, who have excellent skills & experience are going to leave the industry within the next couple of years. What will happen to the clients then? Perhaps some of those ASIC lawyers can re-train to become advisers…let’s see if they can earn a crust being shackled by ever more draconian legislation!
This isn’t going to change, so my tip would be for advisers to realise that and prepare for a number of challenging years ahead.
What should happen is that ‘No Win No Fee’ is made mandatory for the legal industry. If you go to court and lose, you should not have to pay your lawyer a cent, as you are not better off as a result of their service. If you do win and you pay your legal fees and then the other side appeals, you should claw back the fees you paid. Once this is put into place, these legal peacocks will get the message.
Because it’s political
Add to this the re-auth fee for the super trustees which looks like it might be annually!
Some good points by Wright, but he has fallen into the trap of equating “fee for no service [i]remediation payments[/i][i][/i]” with the actual incidence of fee for no service.
Wrong. Wrong. Wrong. Big instos like Westpac and CBA are making “remediation payments” with scant evidence that service wasn’t provided. They are not checking with advisers and clients as to what actually happened. They are making these “remediation payments” to appease the regulators and improve their brand image, so that they can continue making money from their core banking business. The real incidence of “fee for no service” is much lower than the value of “remediation payments” would suggest.
The 80/20 rule is probably about right on average. But it varies greatly according to client types. Retirees, who have lots of time on their hands and view their adviser engagements as a source of social contact and mental stimulation, are very responsive.
On the other hand, working families who have a thousand other stresses and priorities, rarely do anything on time. They are very happy to pay their adviser for ongoing monitoring and assistance, but resent being pushed and nagged to comply with arbitrary timeframes for the sake of a bureaucratic process.
“Experience as GM at BT Financial Advice”. “80/20 rule”. Honestly, why would we be interested in the opinions of anyone who is ex BT/Westpac?
Why wouldn’t we? At least he has industry experience. Or are you saying because he is from BT then his opinion is redundant?
Because he has practical experience in trying to implement regulations. The nation is being called to review red tape to improve productivity. This never happened after the royal commission and is a huge error that will have collateral damage that should have been considered rather than being blindly introduced as regulation.
…and how did we get to the Royal Commission? BT/Westpac and others. What’s next for these IFA articles? Safety tips from Evel Knievel?