At least that’s what you might conclude if you happened upon any article on the Future of Financial Advice Reform legislation. Scan the headlines and it’s rare to find positive commentary much less commentary which tells the story of what’s really happening out there ‘in the trenches’ as licensees and advisers prepare for a FoFA future.

In our first article on FoFA readiness we spoke with small to medium licensees and in this our second in our mini-series on FoFA readiness, we hear from two very large licensees about how they’re readying their representatives for a fully disclosed, clients come first, world.  Ray Griffin spoke with AMP’s Steve Helmich and Securitor’s Adrian De Silva about the FoFA preparedness of their organisations.

With around 460 representatives Securitor, like any large licensee, is charged with getting big numbers of advisers ready for what stills remains an uncertain ‘final cut’ of the legislation which is yet to pass through the Senate.

“We took the view that we needed to run a ‘Pricing Advice Program’ for our advisers which gets them to understand, very clearly, the cost of providing service. While advisers do an amazing amount of good work they don’t always articulate it well the client.”

National Manager, Distribution Adrian De Silva pointed out. “So to date we’ve taken 81 practices through a very intense two day workshop to get them to understand the actual cost to serve and for some you can see the ‘light bulb’ go on with the realisation they’ve been significantly undervaluing their services.”

De Silva says the feedback has been tremendous. “We’ve got advisers saying things like: ‘We now better value who we are and what we do for clients and some are saying that they’re getting better staff ‘buy-in’ and stronger advocacy of the firm by staff.”

Securitor has insisted that the workshop be a ‘whole of firm’ process – not just advisers.  “You need to be sure everyone is on the same page because that’s what creates efficiency.”

Adrian De Silva points out that it has given advisers the confidence to differentiate the various services they provide and how those services should be billed.  On first glance at least, it seems Securitor’s FoFA readiness is paying off with revenue increases of around 54% and 64% average increases of post workshop fees for initial and ongoing advice respectively.

With around 1200 representatives across Australia AMP has been planning for a FoFA type environment since 2009. Director of Financial Planning, Advice and Services, Steve Helmich notes: “We always try to look ahead and predict what’s happening with consumers and in 2009 we felt we had a real opportunity to take a leadership position in the financial planning profession by moving all our financial planners to fee based advice. And so we made the decision that from 1 July 2010 we would only deal with new financial planning clients on a fee basis with the only exceptions being risk cover and mortgages.”

With reference to the possible so-called ‘opt-in’ outcomes of FoFA, Helmich points out that clients are at liberty to ‘turn off the advice fee at any time. “The power is in the hands of the consumer.”

The uncertainty of the final version of FoFA remains a concern for the two licensees. With the Bill having passed through the lower house its passage through the Senate remains unclear. Into that mix sits the clearly stated view of the opposition FoFA spokesman, Mathias Cormann, that he remains unhappy with the Bill and would look to make significant changes to it should there be a change of government. The opposition appears to hold strong views against the Opt-In aspects of FoFA.  However, while AMP and Securitor both readily admit that knowing exactly what FoFA will eventually dictate is difficult, they nevertheless seem to be getting on with business despite the uncertainty.

AMP’s Helmich noted: “We don’t know what the final form will be – because there’s uncertainty around ‘the Code’ it’s difficult to speculate on that.  But what I would say is we know what the FPA’s Code is now and we’re very well aligned to it. So we will look at the situation and understand what comes out of the Code [of Practice] and then make our decisions around that.  We’re very consumer focused and we want the clients of our planners to understand what they’re paying for.”   Steve Helmich also noted that AMP representatives receive no remuneration incentives for recommending AMP products. “They get no extra kudos for using AMP over Asgard or BT over AMP – or whatever it is – they will pick the products with which the clients are most comfortable and which also suits the clients’ needs.” He also points out that AMP products do not pay commission to any advisers regardless of their licensee.

De Silva claims that resultant of the Securitor’s advice pricing workshops and 12 week coaching program post the workshop, their advisers are not as concerned about FoFA because they are better prepared for some of the key elements. “We’ve gone to our advisers and discussed the potential FoFA impacts on their businesses and overlaid their current situations with FoFA requirements so they can see the financial impact on revenue.” Securitor then digs deeper via a 24 question survey which focuses on their advisers’ ongoing fee obligations; their ‘best interest’ obligations and their conflicted remuneration. “Then we prepare them for the potential ‘hot spots’ when the legislation eventually comes out so they can say: ‘My business is FoFA proof’” Adrian De Silva notes.

Both AMP and Securitor are going to be impacted to some extent by the conflicts of remuneration components of FoFA.  However, Steve Helmich believes AMP advisers will be able to accommodate the requirements. “We always make sure we disclose any interests or potential conflicts of interest on each and every bit of advice we give which unfortunately this makes advice documents a bit longer than they should be but we do want people to understand [the interests and conflicts]. But the truth is people are dealing with an AMP financial planner and there is some expectation that they may get an AMP product as part of the solutions for their advice.”  Securitor’s De Silva seems to sum it up when he states: “At the end of the day ’best interest’ is always what good financial planning has been about.”

A common thread has interwoven the comments made by all the licensees we interviewed for these articles and that is the need for their advisers to be able to articulate the advice Value Proposition to both new and existing clients. It’s no surprise that it all comes down to what do clients receive in return for the fees they pay and do clients see it as value for money?  My observation has been that even before FoFA, well run financial advice businesses from both the large and small licensee settings were already operating in a quasi FoFA format.  Best Interests, full disclosure of any conflicts and costs were key differentiators in such businesses.  In a post FoFA world the rest of the Australian financial advice scene is being brought up to that standard and that’s a very good thing for all stakeholders.

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