What do financial planners want from industry reforms?

It seems the people most effected by the proposed reforms of the financial advice industry have had very little say in what reforms are needed and how they should be implemented. Of course I am talking about the financial planning practitioners themselves.

However, parties who’s sole interest is in seeing the destruction of the financial advice industry to improve their own competitive advantage such as directly marketed industry superannuation funds and other directly marketed funds management business seem to be the main players driving the reforms.

The overwhelming majority of advisers are concerned the proposed reforms will not achieve a positive outcome for the industry and feel that the major participants in the industry, “the Financial Planner Practitioners”, have been mostly ignored in the consultative process.

Financial planners feel that any reform needs to be implemented in a positive way that adds value and makes the Australian Financial Planning Industry a world leader. They don’t feel this is the likely outcome of current discussions.  Imposing reforms – such as some of those currently in play – that are designed to give a competitive advantage to one sector of the financial services industry over another will not only damage the entire financial services industry but will also be detrimental to the future wellbeing of our economy and the retirement incomes of many Australians.

Financial planners feel they are the minority opinion in how their industry should be reformed. Financial planners also feel that many of the major industry bodies who lobby Government on behalf of the financial planning industry are dominated by funds management companies – some of which are possibly conflicted in regard to the desired outcome of the reforms and may not represent a balanced view of the entire financial advice industry.

I have put together a reform wish list on behalf of – and based on feedback from – my industry colleagues.

So, in the interests of getting out a point of view which represents the thoughts of a good portion of financial planners, here is a good start to The Financial Planners’ Reform Wish List:

1. A level playing field for all participants in the financial services industry. Financial planners feel that some sectors of the superannuation industry are favoured over others. This creates oligopolies within the superannuation industry and is not ultimately good for competition or the end consumer.
2. A fair approach to transitioning from commissions to fee for service. Financial planning practices need to be given time to implement this change as it is no small task to transition clients to a new fee structure. At the end of the day when many long term financial planners built their practices, commission payments were a legitimate method for being paid for services – as it still is for most other industries in Australia in one form or another.  Look at how these people are paid: the legal profession, real estate agents, advertising companies, general insurance brokers, funds management and so on.  And don’t get me started on how the entire tax system is based not on a flat fee but on a percentage basis.
3. A level playing field for financial planner remuneration. If financial planners can no longer receive commissions paid from client’s fees in superannuation and other investment products, why is it okay for industry fund financial planners to be paid salaries that are funded by client’s fees? Isn’t this the same as – or worse than – a commission? Won’t this lead to the bulk of financial advice being provided by product manufacturers and take us back to the bad old days of 100% biased advice?
4. A consistent legal framework and consumer protection. Financial planners feel that the result of the reforms could see financial advice predominately being provided by product manufacturers especially where product manufacturers can run advice practices that provide 100% biased advice, pay commission-like salaries funded from clients’ fees and in many cases be exempt from the consumer protection rules under the intra fund advice provisions. How can this be good for the end consumer? Exempting some sections of the advice industry from complying with the consumer protections for advice will result in a race to the bottom.
5. A balanced approach to reporting from some sections of the media. The proposed reforms, when announced by the Minister, coincided with another bout of negativity aimed squarely at the financial planning industry by many commentators. Some of the negativity has been justified in small pockets of the industry where there has been some disappointment, however I have never heard of any financial advice industry in the world that has had to endure such a sustained barrage of criticism and negativity. Financial planners feel they are being unfairly targeted to the benefit of other sectors of the industry.
6. Make advice more accessible, affordable and independent.  Financial planners feel that the Financial Services Reform Act already provides adequate consumer safeguards and that much of the proposed reforms to improve consumer protection only drive up costs. The reforms need to help in driving down costs while at the same time improving the quality of the advice.
7. Positive support for the industry from Government. The Government is openly supportive of most of Australia’s industries, and it would be nice to see  the Government also supporting the financial planning industry.  Clearly the lobby groups need to do more work in this area to win the support of the Government, possibly by explaining how much clients can benefit – financially and emotionally – from having a financial planner who develops a solid strategic plan for the client and then ensures the client sticks to that plan.
8. Less paternalistic approach. Financial planners feel we are seeing more prescriptive  approaches that treat advisers and their clients like children.  Examples are the proposed annual opt-in for financial advice fees and the My Super concept. The implementation of the opt in arrangements will only result in increased costs and complexity for clients. At the end of the day every client receives an annual statement and it is glaringly obvious on these statements what fees are being paid to the financial adviser.  If the client wishes to discontinue the service all they have to do is pick up the phone.

The financial planning industry plays a major role in building the retirement savings of Australians and in properly structuring people’s financial affairs to help them become financially independent and make them less reliant on the social security system in retirement.  As one of Australia’s most important industries in delivering economic wellbeing for ordinary Australians, financial planners feel they should have the opportunity to provide feedback on any proposed reforms.