A helpful document from Treasury accompanying the draft legislation called an Explanatory Memorandum goes through the strategic intent of the Government in formulating policy, the various options open to it and the impact of these actions which can be viewed on their website. It is insightful in revealing in stark detail the prediction of a loss of jobs of around half of the financial planning community over the next few years while seeking to increase access of advice to a wider number of Australians at the same time. Treasury’s concluding remarks were that there was an inadequate amount of research to support the Government’s preferred option and recommending further consultation.

As a practicing self licensed adviser this leaves me with a number of confusing anomalies to work through as the various carve outs are negotiated behind closed doors. In investments I can charge a brokerage on a  direct share or ETF but not on a Index Managed Fund which achieves a similar function.

I can charge a fee of $1000 for advice but not brokerage of $50 for the same outcome. I can receive commission on a individual risk insurance policy but not on a group plan which may be a better more cost effective outcome for a client. I can charge a % based fee on a geared share fund but only a flat fee on a geared portfolio. I can receive a  profit share on group business as do the Industry funds as long as it’s not called brokerage. Finally of course there is no certainty that this will actually be the final legislative result or survive the inevitable legal challenge.

Of immediate concern is of course the welfare of clients in the current volatile market which coupled with yet more insurance claims keeps me busy. It is hard for clients over 50 to plan future super contributions from next financial year as there is no certainty on the amounts that can be contributed and any lifetime limit to this amount so caution and flexibility are the current watchwords. With so much uncertainly a clear heady and a steady hand is as important as ever.

Finally my prediction for FOFA is that it will be referred to a Parliamentary Enquiry where the real issues of long term retirement income streams can be thought through. Currently the wrong clients are taking the wrong level of risks at the wrong time of their lives in a game of Russian Roulette.

We need to earnestly dovetail retirement income streams with centerlink benefits to reduce the equity risk being taken by retirees. With good judgement and commonsense it should be possible for all Australians to have access to advice at a reasonable price without favouring one lobby group over another.

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First our thoughts are naturally with all the clients and colleagues affected by the recent floods. In particular the many regional advisors who are working tirelessly and selflessly to help their local communities through these difficult times. It is at times like this that the real value of locally based advisors in the community can help with their years of experience and local knowledge. Hopefully Adviservoice can be a conduit for keeping us all engaged and involved in Industry issues. We would love to hear some stories of the real differences advisors are making in their local communities at this time.

Like many firms we are doing our annual planning and budgeting to meet our clients’ needs and sadly the uncertainty of the current Government’s proposals make this a difficult task with confidence in our legislators continuing to deteriorate. The proposed changes introducing ‘My Super’ were poorly thought through with the public expected to retain a standard asset allocation throughout their pre and post retirement years without the need for advice. This will be a recipe for disaster when adverse markets material affect returns in the short term and systems and advice processes are not valued and supported to help the public through these critical years. A better solution would have been to have focused on the excessive risk retirees are taking to get a acceptable return and to interface guaranteed income streams in retirement with social security benefits.

Similarly the proposed annual opt in provisions which started out as an ambit claim from Sussex St and became a rallying call for the ‘Industry Fund Network’ demonstrates a serious lack of judgement that it would even be considered. Having travelled and spoken in China, the US and UK in recent times I can confirm that no other pension market is considering such an extraordinary reckless act. Again a better answer would be to have free and fair competition and advertising between all sections of the marketplace. The level of advice needed for an Industry Fund Member which has an average balance of $20k would be different to a Self Managed Fund with an average balance of $450k, hence principles based legislation provides the flexibility to meet the customer requirements of the different market segments.

At the heart of the future retirement issues we face as a nation is the need to improve engagement with the public Could it be that the 80% of the public currently supposedly disengaged with super are the same ones who are not making personal contributions. Conversely could it be that the 20% who do actively contribute are the ones fully engaged and who wish to put in higher contributions than are currently allowed. To my mind we need joint contributions from both employers and employees to get adequate retirement benefits which again is common when you look at comparable systems around the world.

Well that’s how I see it so for me it’s back to the planning and budgeting. Hopefully some commonsense and commercial experience can be brought to bear and replace the mindless politicking currently being observed failing which we could seriously be looking at the ‘Balkanisation’ of the industry. It is time for good men and women to stand up and get this debate back on track the retirees of Australia deserve a lot better.

The post Let’s kickstart the retirement debate in 2011 appeared first on AdviserVoice.

Thanks for the feedback on the AFA advertising initiative.

Like many practioners I am trying to work through the potential ramifications of the proposed FOFA changes to advice. While the politics of market share behind these proposals are easy to understand the economic ramifications are very serious with several takeovers from overseas  interests of iconic Australian Company’s underway and others in the pipeline. The current regulatory uncertainty has all but stopped investment and recruitment in the advice sector at a time when Australians should be benefiting from improving market sentiment. This has a very eerie resemblance to similar issues in the mortgage market which led to reduced competition due to the squeeze and ultimate collapse of the smaller independent providers.

In our practice we service around 1500 clients of very varied needs and circumstances. Our top clients pay fees by cheque and have in excess of $1m to invest; our middle clients pay by adviser fees and brokerage via Wraps and Corporate Super Plans, while our poorest clients are attended to on a loss basis for help with budgeting and  Centrelink.  A number attend a Soup Kitchen we support in our local community on a Monday night. Where appropriate clients have a service agreement with us which they cancel on 30 days notice which provides a fair and competitive environment for us  and for clients to retain control of the payment process.

I have always believed that advice should be available and affordable to all Australians and that Advisors should not just pick the most profitable clients but provide a wider service to the whole community  and in particular the weak and vulnerable. The proposed changes would eliminate this with Advisors forced to manage a smaller client base with a stricter client qualification criteria. The very people who need help will then be left to fend for themselves and become prey to unlicensed advisors and property spruikers. The number of working families with access to ongoing advice from qualified advisors would substantially diminish.

I have  observed firsthand the absolute chaos a similar approach caused in the UK, my country of birth. There three of the four major banks are affectively controlled and owned by the Government and the Advice Industry has ceased to function efficiently I only hope that we learn from this and that wise heads can prevail over political imperatives. The real issues of an ageing workforce who need stable income in retirement is far more important than mindless undermining of the industry by certain vested interests.

Let me know what you think I’m off to help at the soup kitchen tonight.

Till next time

Tony

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I am currently attending the “AFA Conference’ on the Gold Coast, as a paying delegate of one of a number of Industry Bodies I belong to. The big news today is the proposed launch of a $5m advertising campaign by the AFA Membership to build a positive message of the value  of advice members give to their clients and the wider community. The proforma TV advertisements looked very impressive and consumer friendly.

In part, this is to counter the estimated $20m a year advertising campaign of the Industry Fund which was generally perceived to be ‘anti -advice’. The funding of this is to come from the membership with a suggestion of a 1% levy on turnover which in practice is similar to our professional indemnity premiums. It remains to be seen whether other Industry Bodies will follow suit or even join forces.

My first  question of the week to practicing advisors is therefore “will you be prepared to financially support this kind of initiative to improve consumers understanding of what we do”?  As for me my cheque is in the mail.

Till next week

Tony

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