Argyle has contracted and partnered with My Dealer Services to undertake the AFSL compliance reviews.

Speaking at the Association of Independently Owned Financial Professionals (AIOFP) national conference in Hobart Tasmania, Executive Director Peter Johnston announced the launch of a compliance service for the Association’s membership of over 90 independently owned AFSL holders.

Commenting on the announcement, Peter Johnston confirmed Managing Principal Peter Bobbin from Argyle (part of the Rockwell Olivier national legal group) has been given the responsibility of providing the AFSL review service for AIOFP.

Argyle has contracted and partnered with My Dealer Services Pty Ltd (MDS) to undertake the AFSL compliance reviews under an exclusive arrangement, whilst practice appraisals is the responsibility of Frank Smith’s Adviser Compliance Services.

“The selection of MDS to undertake the task of ensuring AIOFP’s members AFSL requirements are in order was an easy choice as their industry reputation has been built on the successful processing of over 100 License applications for advisers and dealer groups,” said Peter Bobbin.

MDS was founded as a specialist support service provider for advisers seeking their own AFSL and the company comprises a senior management team of experienced financial services professionals with extensive and personal industry sector insight.

The ‘hands on’ expertise is reflected in MDS’s 100% success rate in supporting advisers to achieve their AFSL goals.

Supporting Peter Bobbin’s decision to utilise the expertise and services of MDS, Peter Johnston said he was confident that AIOFP’s members will appreciate the benefits that will be delivered through the comprehensive AFSL review offering.

In addition, Johnston says that any potential issues will be identified and remedied, resulting in a complete package for not only the licensee, but for any other interested parties such as ASIC or prospective buyers.

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Instreet will issue a specifically tailored structured product for Personal Choice Management (PCM) which provides investment services and products for AIOFP members. PCM is a member owned AFSL holding entity that utilizes the scale of AIOFP members to negotiate superior conditions for clients and advisers. 

Peter Johnston, Director of PCM, said: “Our member feedback shows that advisors are looking for new investment options to differentiate their business from institutionally aligned practices as optimism comes back into the Australian market. We have partnered with Instreet, a strong player in the structured products sector, to meet this demand.”

“The PCM Structured Product was designed with a working committee of advisers within the association to ensure that the end result was an investment solution that was relevant to a diverse range of advisers and their clients.” 

George Lucas, managing director Instreet, says: “We are very excited to partner with AIOFP as we have always valued feedback from independent advisers to develop relevant products for their clients.

“We have been offering a tailored solution to the market for a number of years now.  It is an empowering experience for our customers as it contributes to their own unique business proposition by delivering a tailored solution for their clients that truly respond to their investment needs. 

“This was the criteria set up by AIOFP in front of us. This new product allows AIOFP members to create value for their clients. It offers them access to specific markets and build investment strategies with underlying investments covering Mid Cap US stocks, European Stocks, South East Asian stocks and Australian markets,” Lucas says.

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Johnston confirmed that AIOFP expects its member advisers and dealer groups will be far more demanding, vocal and insist on greater involvement and equity in financial products and platforms in the future.

“The major issue of ANZ’s Oasis purchase for AIOFP’s advisers relates to client ownership and equity. Especially as a number of high profile national dealer groups, who built the business with their white label Oasis products, received nothing from the sale to acknowledge both their contribution and efforts,” said Peter Johnston.

“All these dealer groups and their respective advisers received from the transaction was a new product owner of what they thought were their clients. They have now had enough of building someone else’s business only to see it sold off and then having their clients owned by another institution.”

AIOFP predicts that this key event will have ongoing industry significance and will be the basis for a major paradigm shift within financial services whereby advisers in growing numbers will demand greater control and management over their clients. SMSFs will be one option that is expected to continue growing as a solution that provides control and a say in the all important client / adviser relationship.

A properly structured Private Label platform is also another strategy that will address adviser demands. Non-institutionally influenced dealer groups are already reviewing their APLs and only supporting Private Labels that provide client ownership and equity.

Peter Johnston continued, “Over the past 20 years advisers have not sought legal advice on the ownership and structure of platforms despite a steady stream of platform sales to institutions.”

“The message has been heard by advisers as these sales have resulted in the transfer of client ownership – the core asset of all practices – and it must be addressed as a high priority.”

Ongoing feedback from the marketplace and AIOFP members strongly suggests that the Oasis buyout was the last straw for advisers; but more importantly that the institutions are listening and responding to these adviser and dealer group concerns.

Asgard was the first to build a Private Label platform structure three years ago whilst fellow institutions were reluctant to consider alternatives that would acknowledge the adviser client relationship issue. Poor inflows in recent times, has seen a change in some of the major institutions as they adopt a more conciliatory approach.

The subject of client ownership, including these recent developments and changes, will be covered extensively in the Association’s upcoming annual conference to be held in March in Thailand.

“Institutions are realising that an irreversible paradigm shift is underway and advisers will not support a platform product unless it has the ownership and equity issues addressed to their satisfaction,” concluded Peter Johnston.

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A Discussion Paper Presented to Minister Bill Shorten

1. Fiduciary Duty

While there is currently no statutory fiduciary duty, the vast majority of advisers already behave in a manner that is consistent with such a duty.  i.e., they act in the best interests of clients and place their client’s interests ahead of their own.  The duty should underpin the current characteristics inherent in adviser / client relationships e.g. Trust, Loyalty, Transparency, Objectivity, Ongoing Engagement, Due Care and Skills.

We understand Treasury is considering the introduction of “a reasonable steps qualifier” which requires further clarification.

We believe any fiduciary duty should be “Principles based” but provides sufficient clarity and certainty for advisers and clients about the nature and ramifications of the relationship.

2. Insurance and Commissions

AIOFP accepts that commission banning on investment based products is a thing of the past, however commissions on “Risk based products” should not proceed.

The removal of commissions on Life insurance can potentially undermine the quality of advice obtained or even discourage people from seeking advice altogether.  We support the consumer’s right to choose how they pay for advice as well as flexibility in how advisers can charge clients.  Further we recommend the same treatment for wholesale clients and retail clients in relation to a ban on commissions.  We do not support the Cooper Review’s final report recommendation that commissions should be banned on all insurance products in super, including Group Risk and Personal insurance.

The concern is even greater for accumulators who do not have the where with all to pay fee for service relating to risk advice.  It would appear that the proposed legislation may actually harm those that it purports to help.

3. Intra Fund Advice

We support the belief that financial planning advice cannot be easily broken into simple single components due to the inter-relationship between individual pieces of advice.  This potentially exposes consumers to inappropriate advice by limiting the scope advice provided by not making adequate enquiries.

We require a level playing field that is applied to the advisory sector as well as those that are fund or institutionally based.

4. Volume Payments

Volume based payments are commercially legitimate and are a consumer benefit, fostering competition in the financial services area.  Particularly on a “platform basis”, product selection is “neutral” and unbiased.  Platforms promote efficiencies and administration benefits that are passed onto the client within the form of a rebate or other benefits.  Volume reflects reality e.g. economies of scale.

5. Opt In

Opt in is seen to be an issue of significant concern that may result in administrative nightmares causing reduced services to low end clients or prohibitive costs.  A suggested alternative may be for an “Opt Out approach”, similar to Risk cover increases.

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A Discussion Paper Presented to Minister Bill Shorten

1.1    The objective of this paper is to highlight some issues that exist in the Australian financial services industry that may not get raised by the Institutional and Industry Fund sectors but deserve serious consideration.

1.2    BASIC ASSUMPTION – The Government wants a healthy independently owned sector to maintain balance and choice for consumers with advice and product. The only other option is an industry totally dominated by the Banks, Life Offices [Institutions] and Industry Funds. The independent advice market represents approximately 15% and currently contracting due to Institutional purchasing activity and day to day operational difficulties smaller practice principals are facing. It is common for the smaller groups to sell/join the larger national independent groups who are then selling to the Institutions.

2.1    LOSS LEADING BUSINESS MODELS – The Institutions own or directly influence over 83% of the advisers in the market. The far majority of these institutionally owned practices operate at a significant annual loss whereas the independently owned sector must prove solvency to ASIC to maintain their AFSL. The Institutionally owned practices are permitted to ‘hide’ these annual losses in the balance sheet of their parent company and subside their practices with the embedded profits the Institutions make on the book of business accumulated in their wealth division [from the activity of the practice].

2.2    Essentially, the Institutional practice is a ‘funnel’ for client monies into their wealth division, they are permitted to operate at a loss and the wealth division profits subsidise the advice delivery. The ratio is around 10 to 1 i.e. for every $10 million the institutionally owned practice loses on advice they make $100 million on the embedded profits in the wealth division on the book of business the practice has delivered.

2.3    We have raised this matter with ASIC some time ago, they acknowledged its existence, dismissed it as irrelevant and declared ‘we must cater for all business models’.

2.4     Industry Funds are also operating unprofitable advice practices but are subsidising the practices out of general revenue from other profit centres within their platform business model.

3.1     FOFA REBATE PROPOSAL – The AIOFP agrees that commissions from investment products should be eliminated from the market but however contend that platform rebates/dividends should be treated differently.  A Platform is an administration service that reports to its members, it is not a managed fund or similar. Consumers do not invest into a platform [like they do with a managed fund] they are charged a fee to use the platform to deliver a reporting service back to them. Industry Super Funds are also a platform with similar functionality and service to their members. It could be argued that all Industry Fund members pay for a loss leading advice function that only a fraction use.

3.2    Like Institutions and Industry Funds, Independents want to also use platform profit margins to subsidise advice delivery. Platform profits are a critical revenue source to the survival of the independent sector.

3.3    This begs the most obvious question – why can’t independents operate the same business model as the Institutions and Industry Funds with their white label and private label manufacturing platform models? This strategy allows the independents to use their scale with the Platform providers to get an institutional fee structure that delivers superior pricing to the consumer and a margin/dividend to the independent practice shareholder to subsidise advice delivery.

4.1   TRANSPARENCY IN ADVERTISING – Pre 2005, institutionally owned practices had to clearly demonstrate on all business cards, advertising and paperwork who owned the license they are operating under.  This gave consumers upfront clarity on who they were dealing with and the likely direction of the advice.

4.2    Since 2005 this ‘mysteriously’ changed with Institutionally aligned advisers being allowed to masquerade as an ‘independent’ with no indication on any advertising who they are licensed to. They now only have to divulge their ownership in the FSG during the first client interview. At this point the ownership issue is used as a ‘comfort’ strategy after the adviser’s ‘sales pitch’  and all the clients monies would commonly be channelled in one direction. We raised this issue with Nick Sherry in 2007 who demonstrated genuine surprise the practice had changed.

4.3    Successive Government’s over the years have insisted on transparency as a key     plank in the quest for a professional industry, this is a very fundamental function that has escaped scrutiny.

5.1    INDEPENDENT TRUSTEE/RE ROLE WITH ADMINISTRATION/FUNDS MANAGEMENT – During the 1980/90’s this role was exclusively with the independent trustee sector, the Institutions have now taken control of the functions in house with staff and paid ‘professionals’ on the trustee  committee. Considering the function is largely a supervisory role ensuring that the administrator/custodian/fund manager is adhering to all laws and acting in the best interests of the clients/members, surely this should be performed by an APRA approved third party to avoid conflicts.

5.2    The institutions also treat it as a healthy profit centre charging clients around 12 basis points whereas the cost from the independent trustee sector can be as low as 4 basis points. A change in policy will provide consumers with lower costs and integrity in the process.

6.1    CONFLICTED RESEARCH HOUSE BUSINESS MODELS – Research is the most important function in a practice, it is fruitless to have the best staff, practice, administration and have a flawed approved product list. The practice is therefore an accident waiting to happen.

6.2    The industry largely relies upon Research House ratings to assist their client recommendations. Most advisers do not have the time, expertise or resources to perform the task personally or internally. Over the past 25 years it     has become acceptable in Australia for product manufacturers to pay research houses to rate their products. This profoundly conflicted process has been blamed for a number of second tier product manufacturers ‘buying’ favourable ratings to give them legitimacy with the market. Basis Capital, Westpoint, Great Southern, Timbercorp, Astarra and Willmotts are only a few examples of groups     that purchased a rating and ended in catastrophe.

6.3    If the Government is serious about protecting consumer assets this culture has to be eliminated. Elimination of conflicted research practises will lead to an elimination of “dodgy” product manufacturers from the market.

6.4    Product failure is by the far the greatest cost for consumers with in excess of $6 billion being lost over the past 5 years. The attached article (fig. 1) demonstrates that US Congress has finally dealt with the matter.

6.5     The major issues affecting the research industry are too many operators in the market, insufficient revenue and larger practices negotiating group discounted deals further diluting the revenue pool.

6.6    The Research Houses have become the ‘gate keepers’ in the industry with advisers needing a rating and product manufacturer’s needing inflows. These ingredients have lead to a conflicted dubious environment where inexplicable ratings have been ‘shopped’ around and paid for, leaving clients and advisers the victims.

6.7    Our suggestions are each adviser is levied a fee, the pool is managed by ASIC with 2-4 Research Houses tendering for revenue to deliver advice to advisers and  paying for ratings legislated against. The other option is self regulation by boycotting those who accept conflicted payments. There are only 2 conflict free retail Research Houses in the market, Mercer and McGregor the other 8 accept conflicted payments of varying descriptions.

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Dr. Maddern is President of Melbourne based Maddern Financial Advisers Pty Ltd (MFA). Established in 2003, MFA offers a full suite of ntegrated financial planning, investment, retirement, insurance, superannuation, lending and taxation solutions to a growing base of over 2000 clients.

John Ardino is the Managing Director of Lifespan Financial Planning (Lifespan). Lifespan commenced in 1994 and now has a network of 130 authorised representatives operating from 110 offices across Australia, principally in NSW, Victoria and Queensland.

In welcoming Dr. Dennis Maddern and John Ardino to the AIOFP Board, Peter Daly said both Directors are highly experienced professional business practitioners with extensive industry experience and knowledge.

“The addition of Dennis and John’s skills and experience to the Board will complement those of our existing Board,” added Peter Daly.

“I am confident the AIOFP Board is well positioned to guide the organisation into the future and will successfully address the challenges and issues facing the financial services industry.”

The other members of the AIOFP Board are Tony Siragusa of Money Guidance Pty Ltd, Ben Jayaweera of Growth Plus Financial Group and Executive Director, Peter Johnston.

AIOFP has also confirmed that the Board will meet with Minister for Financial Services & Superannuation; Assistant Treasurer, Hon Bill Shorten MP on November 4th to articulate the views of the independent sector of the Financial Services industry.

“It is important that the all sectors of the industry are consulted by the Federal Government, in particular those of the non institutionally owned providers of professional financial advice,” said AIOFP Executive Director Peter Johnston.

At the meeting with Minister Shorten, it is the objective of the AIOFP Board that a broad range of issues important to the future viability of the advice industry are communicated and discussed, in particular transparency in advertising, loss leading practice strategies by institutions, independent trustee / RE functions, conflicted research house business models, etc.

“With the addition of the two new Directors to the Association’s Board, AIOFP will continue to promote the benefits, importance and value to Australian consumers of financial advice that is provided by independent / non institutionally aligned advisers and AFS licence holders,” concluded Peter Daly.

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