Dear ScoMo,
Firstly, congratulations on your historic election win. I don’t think even you expected to win by such a large margin – the bookies and pollsters certainly got it wrong.
Now that you have triumphed, you have a unique opportunity to review all sides of the big issues and implement policy as you see fit. With that in mind, I thought it was an opportune time to write to you on behalf of the Australian financial advice fraternity about some key points that we desperately need some policy leadership on: the poorly implemented FASEA regime and commission structures, particularly issues arising from the Life Insurance Framework (LIF).
Respectfully, it seems recently that legislation was often drafted to win votes rather than in the best interests of the country. What I mean is that many reforms to our industry over the past 10 years sound great as headlines (e.g. abolish commissions and raise education standards), but when you delve into the detail they generally lead to much higher costs for very little benefit. With the election over, this now needs to change. In the wake of the banking royal commission, there is definitely an appetite for reform of the financial advice industry. And rightly so.
However, many of these reforms will dramatically reduce the accessibility to advice, thereby exacerbating the problem that less than 20 per cent of Australians receive financial advice as well as the $2 trillion underinsurance problem. Abolishing all commissions and FASEA will result in an industry where financial advice is only available to the very wealthiest Australians, provided by highly paid professionals with lots of letters next to their names. How can anyone say that this is in the public interest?
In my view, the FASEA regime, which requires experienced advisers to go back to school to tick off regulatory boxes, has not been well thought through. It may sound intuitive to people outside of the industry but to practitioners, it is major overkill, ultimately to the detriment of the Australian public.
To expect that a 25-year-old with a financial planning degree and a year of experience can provide better client outcomes than an educated 50-year-old adviser with a solid track record, no degree but with 25 years of experience and continuing professional development is simply ludicrous.
Requiring experienced advisers to go back to school will lead to a mass exodus of quality advisers, creating a major problem of under-advised and ‘orphaned’ clients as these veteran advisers who don’t meet the FASEA guidelines are forced out of the industry. Having said that, I think most advisers support having higher education barriers for new advisers. As a compromise, why not ‘grandfather’ the FASEA regime so it only applies to younger advisers entering the industry?
There needs to be better concessions for our senior advisers.
In an industry that is constantly changing, CPD is more valuable to its practitioners anyway. In fact, often the rules that course work is based on have changed by the time the assessment is marked, particularly in the case of superannuation.
Many experienced advisers feel incredibly demoralised and insulted at the notion that they will only be good enough to service their clients if they complete a graduate diploma after all their years of experience and service.
There is no doubt that the costs of becoming FASEA compliant will eventually be passed on to clients, further reducing the number of Australians receiving financial advice.
To boot, the government is also looking to remove roughly 33 per cent of the industry’s income, estimated to be around $1.7 billion by IBIS and Adviser Ratings, by abolishing grandfathered trailing commissions. This is against legal advice received by government back in 2012 that said this was unconstitutional.
Trails are a funding mechanism that allows clients to obtain financial advice with little payment upfront. I’ll leave it to you to determine whether you think it’s reasonable for a business operator to provide a service without adequate initial compensation upfront only to have their funding mechanism cut off by government down the track.
How can an industry have confidence in a government that behaves like this? There is no evidence of any scandals involving large numbers of consumers getting hurt by trailing commissions. The fee-for-no-service scandal highlighted by the royal commission was to do with fees being charged without the provision of services. This had absolutely nothing to do with grandfathered commissions, however, the two issues are often confused with each other.
I am told that legal advice sought by industry bodies looking to mount a High Court challenge was that there was little doubt that what is being proposed by government is completely unconstitutional and unprecedented. Nor could the lawyers believe how accommodating the industry was about it. I wonder how it would look for a government in one of the greatest democracies in the world to be found to have legislated something that violates the constitution. I urge you to take a look at it.
Another key pain point for many financial advisers is the Life Insurance Framework. Hayne’s report was clear that commissions should “ultimately be reduced to zero”. But this fails to recognise that the current system of commissions, as with those on investment products, plays a valuable role as a funding mechanism for people who cannot otherwise afford advice.
The Liberal government has done well and showed great leadership to recognise this within the mortgage broking industry. I would argue that the reasoning applied to mortgage broking should be used to argue why life insurance commissions are crucial to ensuring consumers have access to this advice through an affordable funding mechanism. This is particularly important in a country that is critically underinsured. Not only does underinsurance leave people vulnerable but it puts an incredible strain on the welfare system.
The overseas experience has shown us that expecting clients to pay out-of-pocket for life insurance advice doesn’t work. It’s hard enough to get consumers to pay for insurance, let alone paying for advice and then the insurance on top of that if they qualify.
Should upfront insurance commissions be reduced further, the fees that advisers will need to charge to cover their costs will be considerable, further alienating consumers and increasing the rate of underinsurance. Consumers will buy more and more inferior insurance products direct from insurers because they will not be able to access advice from advisers trying to keep the insurers honest.
So, ScoMo, again, congratulations. Let’s please try to evaluate all the issues at play so more Australians can secure their financial futures and say, “how good is financial planning?”
Credibility lost by the amateur addressing of the letter and the lack of insight into what actually happened at the election. There is no “large margin”. Prior to the election the government was a minority government. They now have a majority. The net gain was 2 seats. Even if ScoMo did see this and everything in it was correct and reasonable, the chances of action given this lack of credibility are slim.
[quote=Anonymous]Ok, let’s have a look at the credentials for Eugene Ardino from his public LinkedIn CV and the FAR;
– He works for his Dad and this appears to be his ONLY professional work experience since 2007. John Ardino is the MD of Lifespan.
– The FAR does not show that he is a Member of a Professional Association. However he is an AFP of the FPA. So if he doesn’t update the FAR with that membership by 15/11/19 (for code monitoring) he will probably be asked to explain this to ASIC. Should know better than that as a “CEO”!
– Difficult to see that he has any actual financial advice experience. Likely compliance work only.
– On the FAR since 2010 and holds the DFP only (the 4 subject version I imagine).
– No business degree. Holds a Bachelor of Science and so will need to meet the education requirements for a person with a non-relevant degree. That is pretty much the full Grap Dip (possible credits for DFP).
– Is registered with the TPB. Well done!
– Lifespan is a second tier AFSL Dealer Group at best. Likely that they may be facing Adviser retention issues in the face of FASEA – hence this “open letter” one might think to suit their own interests.
Sorry mate, you don’t represent me with your pretty ordinary AFSL, very ordinary CV, lack of financial planning experience and your clumsy letter.
CV check[/quote][quote=Anonymous]Ok, let’s have a look at the credentials for Eugene Ardino from his public LinkedIn CV and the FAR;
– He works for his Dad and this appears to be his ONLY professional work experience since 2007. John Ardino is the MD of Lifespan.
– The FAR does not show that he is a Member of a Professional Association. However he is an AFP of the FPA. So if he doesn’t update the FAR with that membership by 15/11/19 (for code monitoring) he will probably be asked to explain this to ASIC. Should know better than that as a “CEO”!
– Difficult to see that he has any actual financial advice experience. Likely compliance work only.
– On the FAR since 2010 and holds the DFP only (the 4 subject version I imagine).
– No business degree. Holds a Bachelor of Science and so will need to meet the education requirements for a person with a non-relevant degree. That is pretty much the full Grap Dip (possible credits for DFP).
– Is registered with the TPB. Well done!
– Lifespan is a second tier AFSL Dealer Group at best. Likely that they may be facing Adviser retention issues in the face of FASEA – hence this “open letter” one might think to suit their own interests.
Sorry mate, you don’t represent me with your pretty ordinary AFSL, very ordinary CV, lack of financial planning experience and your clumsy letter.
CV check[/quote]
This stuff really @#@# me. The time for putting pen to paper was 12 months ago. Yet another person who most likely thought the FPA or AMP will save the day for me the little old Financial Planner. Do the words “please write to your MP, to FASEA,” not mean anything…for some time we’ve been screaming it from the hills.
Great Article. All these self righteous ones that want to make us a profession are like the climate change brigade. They are out of touch with reality. The most important issue that we need to address is whether we can maintain a profitable business. Not whether we can call ourselves a profession ! Seriously if you give good advice and service and your clients are happy that is all that matters. All this BS about creating a profession is BS. I have run a successful practise for over 30 years and have two degrees so no I am not a dinosaur.
Ok, let’s have a look at the credentials for Eugene Ardino from his public LinkedIn CV and the FAR;
– He works for his Dad and this appears to be his ONLY professional work experience since 2007. John Ardino is the MD of Lifespan.
– The FAR does not show that he is a Member of a Professional Association. However he is an AFP of the FPA. So if he doesn’t update the FAR with that membership by 15/11/19 (for code monitoring) he will probably be asked to explain this to ASIC. Should know better than that as a “CEO”!
– Difficult to see that he has any actual financial advice experience. Likely compliance work only.
– On the FAR since 2010 and holds the DFP only (the 4 subject version I imagine).
– No business degree. Holds a Bachelor of Science and so will need to meet the education requirements for a person with a non-relevant degree. That is pretty much the full Grap Dip (possible credits for DFP).
– Is registered with the TPB. Well done!
– Lifespan is a second tier AFSL Dealer Group at best. Likely that they may be facing Adviser retention issues in the face of FASEA – hence this “open letter” one might think to suit their own interests.
Sorry mate, you don’t represent me with your pretty ordinary AFSL, very ordinary CV, lack of financial planning experience and your clumsy letter.
CV check
well articulated piece, but I would almost bet my house on it that it does not even reach ScoMo’s desk
This letter doesn’t speak for me, next time don’t send it claiming to be on my behalf.
You lost me when you tried to justify commissions.
This letter smells more like a PR exercise in front of planners for self-interest moreso than a realitic attempt or even hope for real change by Government.
Great letter and the whole of the financial services industry should get behind this – Including Practicing Accountants whether CPA, CA or IPA. We can’t successfully secure our clients financial future without you guys and forcing older experienced planners and riskies out of industry will ultimately be detrimental to the consumer. There will also be no-one left to mentor younger planners to become good planners for the future. It also paves the way for the Industry super funds and the banks to gain more power in this space. I’m behind you all the way.
Hopefully many groups and advisers get behind Eugene as he is correct with most things he has written. Rather than it be like a dictatorship why not let the clients choose between an adviser that chooses commissions or fee for service. It’s called choice. And if APRA, ASIC & the compliance people of our industry are all doing their job well the bad will soon be weeded out.
[quote=PH]How about finishing the sentence. $1.3Bn trail income being retained by fund managers who are mostly owned by the banks and not paid to advisers. Should be a great increase in their profit.[/quote][quote=PH]How about finishing the sentence. $1.3Bn trail income being retained by fund managers who are mostly owned by the banks and not paid to advisers. Should be a great increase in their profit.[/quote]
Hi PH,
I have some great news for you, Frydenberg released legislation in March that will oblige institutions to refund grandfathered commissions back to the investor. This is great news!
Any adviser who is providing a service for that commission can simply charge an equivalent fee for their service with no net impact to the client!!
This is also great news for the consumers who are invested in products with opaque (we don’t like to say hidden) commissions who are not actually receiving any service from the recipient of the commission. They will see a reduction in the cost of their product.
It seems like the only loser in this scenario would be an ‘Adviser’ that is receiving commissions from that they could not ordinarily justify to their client as remuneration for the service they provide (see ‘Fees for no service’). I think it would be fair that this group is a small subset of the industry that we need to remove if we wish to be seen as a profession.
In the normal course of events I do not comment on articles (encourages the Keyboard Warrior), however on this occasion I must congratulate Eugene on his well articulated and logical points. The majority of financial services players are traditionally supporters of the Liberal side of politics and now that the election is over and the Liberals have a clear mandate to govern we all need to engage with our local Members. Well done Eugene.
He’s on the mark – wake up FP industry
Without changes as proposed older,more experienced,advisers including myself WILL leave the Industry . Both FOFA (a Shorten product ) and FASEA need review !
I get clients across my desk every day where they have seen someone other adviser who has been an adviser for 5min and i am apalled! i am an adviser and thankful that finally the education standards are being raised to a higher level. I am also glad that adviser choose to leave because they don’t want to meet these new standards. no profession can exist without high levels of education and claim to act in the interest of their clients. too many advisers have acted only in their interest.
Please don’t say you write “on behalf of the Australian financial advice fraternity”. You don’t speak for the industry and this is your opinion. I agree with some of your points and disagree with others. The last thing we need is another point of view claiming to speak on behalf of the industry.
Some sensible leadership provided from within the industry! Well done Eugene.
Apart from the silly “Scomo” bit, you were doing well until you then conflated commissions into the argument about professionalism and older advisers, etc. Commissions should have died 20 years ago and most understand that, so they must go now for consumers to have any faith in either the regulators or our industry.
Fee for service is the only way true professionals get paid and this open letter will achieve very little because it sends the two mixed messages: we want to be allowed our professional status without further formal education qualifications….(already a long bow) AND we want to keep receiving tne rivers of gold we created through a system that was far too often riddled with conflicts.
We can’t expect to have our cake after having eaten it already. Everyone needs to get over the commissions thing and perhaps push for a 5-10 year window for older advisers who maintain a strong professional development program AND who pass an exam, now, and perhaps every 3 years until their retirement. I would do that and it may work for everyone. In my view, what you’re seeking is a bridge too far and too self-interested to receive a proper hearing.
The gutless and greedy FPA and the sleepy AFA (who gladly sits back watching the circus) have caused this once great industry to implode.
The education rort is shocking, it is nothing short of disgusting how these two so called industry bodies have hijacked an industry.
You all should be attacking these two thugs(mainly the FPA) and demanding action.
Every single adviser needs to stand up and LEAVE. Get rid of their memberships to these two mafia hitmen and make a stand.
I and many others have done so. We have also decided it is just not worth the effort, time or money to go through this education SCAM, And it is a scam.
I will continue providing excellent advice, continue servicing all of my fabulous clients and will not have to put up with any of you ridiculous compliance or education standards. All of my clients are signing legal papers signing off on any compliance requirements of this pathetic industry and have all been briefed on the cost to them. All have agreed to continue as normal under the banner of life coaching which gives them educational sessions to show them the pros and cons of their investment world. Hands will be held to DIY which is basically circumnavigation of this ridiculous nonsense known as financial planning.
Take a stand advisers, you and your clients can’t afford this industry anymore. Leave it and do the above.
It is legal, factual and goes back to giving good advice, err I mean “coaching & education” to people who need it and it cost them and me far less to do so.
SACK YOUR INDUSTRY. You do not need it.
How about finishing the sentence. $1.3Bn trail income being retained by fund managers who are mostly owned by the banks and not paid to advisers. Should be a great increase in their profit.
Full 5 unit CFP, Dip FP, Accounting Degree, 20+ years of experience and not a client complaint and I have to complete an exam and a course on ethics. Why? Get out my way so I can help my clients. This is just virtue signalling and FASEA is conflicted by people running Universities and they talk about our conflicts!
More false hope. The sooner the industry accepts the reality of the situation and starts to move forward and deal with the change rather than hoping for some back flip from the government the better.
I like your letter, BUT I am skeptical about the prospect of any enlightened change of attitude in Canberra
More lobbying by our industry bodies needs to be done regarding fasea
This is the style of letter that a Gen Y thinks is appropriate to write to a Prime Minister? Try this:
The Hon. Scott Morrison, MP
Prime Minister of Australia
We have one of the highest leveraged property markets in the world. To kill the market for life insurance advice makes no sense. Government simply cannot fill this gap.
The current outcome where hybrid commissions are allowed with a 2-3 year clawback is an excellent compromise.
It still places the responsibility with consumers to ensure they have adequate insurance for their family’s own needs, while allowing them to access advice in a cost-effective manner. It also penalises business models that rely on turnover of existing policies.