Announcing the first tranche of the legislation for the government’s Delivering Better Financial Outcomes package of reforms in November, Financial Services Minister Stephen Jones said it would remove onerous red tape that adds to the cost of advice with no benefit to consumers
“There should be a capacity for them [advisers] to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that,” Mr Jones said.
Despite the notable absence of statements of advice (SOAs) from the first tranche, he hinted that the ball is now in the advisers’ court regarding possible cost reductions, with the government said to have delivered on its promise.
“Advisers have been saying for some time now, ‘If you reduce the red tape, we’ll be able to provide more affordable services’. We’re going to reduce the red tape, over to you.”
In a submission to the government’s consultation on the first tranche of Quality of Advice Review (QAR) legislation, Steve Melling, managing director of Paul Melling Retirement Planning (PMRP), said that the administrative burden remains.
“It is not clear what objective is served by removing fee disclosure statements but retaining endless fee consents. The result is simply a shortening (or perhaps the removal of one page) of the documents that must be produced, sent out, signed, and returned by each retail client each year,” Mr Melling said.
“The administrative burden on the client is not reduced by removing a few ‘FDS’ lines from annual fee consent documents. The administrative burden on advisers, licensees, and super funds is not materially reduced by this action.”
According to Mr Melling, the draft legislation will do little to increase the accessibility of advice beyond high-net-worth clients.
“What will of course continue to happen is that financial advisers will continue to service only ‘higher net worth’ clients, whose higher balances can generate the higher fees required to justify the ongoing administrative burden,” he said.
“Furthermore, and incredibly, investors who qualify as wholesale by having substantial investment portfolios will continue to be exempt from this burden.
“The minimum fees applied by retail financial advisers will continue to increase – ensuring that lower balance clients will not be able to afford an adviser.”
Following the announcement of the draft legislation in November, Financial Advice Association Australia chief executive Sarah Abood welcomed the consolidation of fee consent documents.
“Delivering on this recommendation will save many hours of frustrating, inefficient, and unnecessary work for both advisers and their clients and we are very happy to see this included in the first tranche of legislation,” Ms Abood said.
Earlier this year, PMRP founder Paul Melling argued for age and fee exemptions on the current requirement for annual “opt-in” fee consents that advisers who have ongoing fee arrangements with their clients are obliged to seek.
Mr Melling’s suggestions were: “To allow financial advice clients over a certain age the ability to ‘opt-out’ of the annual opt-in fee consent requirements. We suggest age 70-plus (or even from age pension age) but certainly no client over 80 years of age should be forced to comply with this burdensome administrative paperwork regime.
“To allow financial advice clients whose (fixed) annual advice fee is less than a dollar threshold the ability to ‘opt-out’ of the annual opt-in fee consent obligations, we suggest $2,400 p.a. or $200 per month as a threshold.”
It was my understanding all the Red Tape on Financial Planners was to slow down the number of clients they touch, Education to reduce numbers, ASIC fees etc to make them expensive – then provide the solution of Product Providers providing Advice – charged to all would you believe and no need for all those silly rules.
If you as a Financial Planner believe the rules will be relaxed for you – suggest you have a look at the reality of the situation.
If all ongoing fees were fixed amounts, agreed on, and signed off by the client there should be no need for either ongoing fee consent or fee disclosure statements!
The fee can only change if the client cancels the agreement, or the adviser and client re negotiate and sign a new agreement.
There is Zero chance that some type of annal Adviser Fee Disclosure & Consent will cease to be required from the Red Tape warriors in Canberra.
– Just use Advisers FDS (that are 10 years old now), with some basic universal common details included.
– Make it compulsory for Admin platforms / Super funds, etc to accept.
– Make it cover both Mr & Mrs (if that is the situation).
– Make it cover ALL Investments, Super and Life Cover, in 1 single doc.
[b]It shouldn’t be that hard but the Canberra Red Tape warriors ALWAYS make it stupidly complex, so they feel important. [/b]
Just have no annual fee consents, and product providers disclose the adviser fee on their statements clearly, which most likely do anyway.
As I have reported before, Treasury and the Minister’s Treasury team have failed to do their own ‘grounded research’ direct with financial advisers and their clients. When I present FDS and Ongoing Fee Agreement to my clients of 30+ years duration from the 1990s, they do not read it, they ask “Where do I sign?” and push the papers back across their kitchen dining table back to me. Then they say: “This is what I want to ask you about?” and on they go … They are not interest in Canberra political beat-ups. Before 1 July 2013, they never complained about commissions, they only asked: “Are you being paid?”, I answered “Yes” and then they went on to, “This is what I want to ask you about?” … Unfortunately, if Financial Services Minister Jones was concerned about the cost of financial advice, after Treasury’s Industry Funding Model (IFM) Final Report dated 26 June 2023 also neglected again to do ‘grounded research’ direct with financial advisers and their clients, the Treasurer approved $46.4 million in financial adviser levies for 2022-23. Financial Institutions with deep pockets and tax write offs are not paying it. It’s coming out of financial advisor’s overhead costs which will be passed directly onto clients 9 months after 2022-23 financial year, because we are obligated to continue providing ASIC RG244 and FASEA ethics obligated regulatory duties so if clients will not pay increase in adviser fees to pay Treasury’s $46.4 million, then the advisory relationship is to be terminated. I will be providing a draft letter to each client, which they can send to their local Federal Member (and their State Senators) and ask their Federal Member Representative to walk across the Parliament Chamber and hand it direct to the Minister, because all other methods of correspondence are shielded away (in coocoo land) from the Minister.
3M says they are increasing production of red tape to allow for an expected surge in deliveries to Parliament House…
Canberra Pollies & Bureaucrats = world record unrelease Red Tape
The reality is that after 12 months of QAR submissions, waiting for Levy and the findings, MP Jones promising to fix the “hot mess” within 3 months of winning the election – little has changed and advisers have been once again led down the garden path by the Government, with no improvement but facing higher costs with the ASIC levy and the new CSLR. Just vote them out and give someone else a go. What would your prospective client do if that’s how you delivered your proposal?
I suspect the recent Mercer case has killed any chance of negative consent getting up for some time.
Why complicate this by having age limits? Why is it not possible for a client to agree to pay an ongoing fee until and unless they advise us they no longer wish to? As long as we’re advising them annually of when and how much they are paying, why is there any need to renew the arrangement annually?
If the regulations indicate to clients that we need all these checks and balances to keep us honest, is it any wonder the public distrust us?
Opt Out is clearly the solution for ALL clients.
They all get told/shown exactify what fees they are paying. It’s all visible.
What’s the problem ?