When stepping back from the daily FoFA headlines, what is really happening on a daily basis with businesses as they ready themselves for the latest round of legislative reform?
This is the first of two articles on how licensees are coping with the potential impact of the Future of Financial Advice Reforms that have been postponed to 1 July 2013. In this article, three principals of independently owned small-to-medium advice businesses discuss what they’re doing to get FoFA ready. The second article in this series will look at how much larger advice businesses, including a product manufacturer, are getting set for FoFA.
In speaking with the heads of three independently owned financial advice firms about the proposed Future of Financial Advice (FoFA) reforms, one thing is abundantly evident…despite the uncertainty of where FoFA will eventually end up, on the whole, they seem to be just getting on with business.
That’s because there are common aspects of the businesses that are allowing them to cope with FoFA – no in-house products, fee for service and good disclosure systems in place. That said, they all have issues with potential costs associated with an opt-in regime and some see issues getting much needed cost effective advice to clients in areas such as corporate super.
Dr Tony Virtue, of Virtue and Partners Sydney, argues that advice for corporate super and intra-fund advice is where the real problems with FoFA lie.
“There’s not a lot of issue with SMSFs because we bill annually, but corporate super is an area that is still far from settled. How that will work with My Super and intra-fund advice, and whether adviser fees are implicit or explicit and so on? To be frank there is still both uncertainty and different interpretations of the legislation as it stands which is still not through the Reps.”
Virtue and Partners provides advice on a range of financial services but primarily in the areas of risk, retail superannuation (using wraps and SMSFs), a non-super investment service along with a mortgage brokerage. Dr Virtue believes that larger portfolio clients are already paying for services on a FoFA type basis but that it’s the smaller portfolio clients where it’s going to be difficult.
“For the larger clients there is no change where there is an invoiced fee. We already send them an invoice and they pay it. I think the real issue is in the ‘mid-market’ – the twenty to fifty thousand type small accounts where we need to get some scale. That’s the area which we’re finding difficult in how to reorganise ourselves in a way that is still relevant to the public.”
Melbourne-based Hewison Private Wealth CEO John Hewison is a little more at ease about what FoFA could mean for his firm. With several hundred million dollars under management via direct investment portfolios, Hewison is very comfortable where the firm sits for an eventual FoFA implementation:
“Really it doesn’t worry us at all. We’re fee-based and we’re transparent. The clients know what they pay because we already issue them with an invoice and for us to send have to send them an annual statement [opt-in] – well, it’s annoying but it’s not a big deal.”
Similarly Orange-based Roan Financial Group head Peter Roan is also ready for FoFA.
“We’ve always adopted the approach that you have to be providing service for clients and a value proposition, and your client needs to be able to connect with you on that and vice versa. So for us, regardless of whichever way FoFA ends up, it’s always going to revolve around a value proposition; the client knowing what they’re paying for – what they’re paying and where it [the payment] is coming from, and did it represent true value for what the work being carried out?”
All three principals are agreed that if an opt-in requirement were to be put back into the Bill, it would add costs to their operations. Tony Virtue argues:
“A lot will depend on if there is any retrospective annual fee disclosure. If ASIC will accept fee disclosure via the quarterly statements that clients receive on a wrap account, for example, then that won’t have an impact, but if we have to write separately to clients historically on my letterhead as opposed to the wrap account, then really that’s just pure duplication for duplication sake. The point is there is no need for there to be a separate piece of paper to what is currently being provided [for fee disclosure].”
Looking more broadly at financial advice businesses, John Hewison claims:
“The real issue is when not if FoFA will actually go through. The big question is how on earth can a product manufacturer comply with fiduciary duty?”
We’ll look at that issue in the next FoFA article.
There are key aspects of these businesses which can well serve licensees looking to set their businesses for an eventual FoFA regime. Each of the businesses has:
- dedicated client service systems already in place
- fee for service charged in a way that ensures clients know how much they’re paying and what for
- strong ongoing relationships with their clients.
Regardless of FoFA, these attributes are already serving these businesses well.
