We mere mortals here in Wealth & Security Planners have been bemusedly scanning the various reactions to Australian Securities & Investments Commission guidelines for the Trustees of super funds to be able to provide advice to their members.
In case you missed it, the guide is set out here. The impetus for the change is the desire of “Industry Super Funds” to provide greater levels of advice to their members.
Here are a few observations from the point of view of our little business.
- The idea that super funds can provide a limited level of advice is positive.
- Not all advice requires a full disclosure of every dollar and cent that a person owns and owes; every taxation implication; every estate planning, insurance and Centrelink ramification of every possible change in circumstances.
- The idea that super funds can provide limited advice cheaper than a financial planner is quite true (in most cases). The planner needs to set up basic (time consuming) files and data collection materials just to say “hello”, so the core cost comparison for the standard random query is definitely in favour of the super fund providing this information.
- Various folks from the financial planning community are dismissive of the change, arguing that it will lead to a reduction in the quality of advice provided, and the potential for that advice to be inappropriate and costly to members.
- The Industry Funds see it as beneficial, and the financial planning arm that the Industry Super funds have a shareholding in sees it as a chance to grow their business substantially.
- The same people who complain about the cost of financial planners call for changes that will inevitably lead to greater costs to access financial planning advice.
Wait a second Michael… Surely you are not suggesting that anyone WANTS financial planning advice to be more expensive?
Well, actually – i am.
Financial planning is more expensive to obtain than it needs to be owing to the continuous demands that financial planners be held to account for more and more and more and more of not only what they actually do – but for what they do not do, (ie, “liability”) along with the ever-present calls for greater levels of something called “Professionalism”.
Firstly, if the average person wanders out of the average planners’ office with a recommendation, the planner is responsible for not just their recommendation but for what they did NOT recommend. If i speak to you about investments in your super, and have collected enough information in the process to be reasonably aware that you are underinsured then there is a potential liability on me to confirm this to you, and to make a further recommendation in relation to this. Think about that for a moment… It pretty much increases the scope of liability for anyone contemplating giving advice far out of proportion to that which the person seeking the advice would have expected – or is likely to want to “pin” on the adviser concerned.
This leads to a whole series of consequences that are not all that obvious. There is the higher cost of professional indemnity (PI) insurance. That may sound irrelevant but a planner cannot operate without that insurance, so it is very relevant. The PI providers set out more harsh requirements for the planner to follow in order to remain covered by the PI policy. For example, inane disclaimers and other such legalese that does very little to clarify just what is and what is not real advicea and what is and what cannot be relied upon. Those who hold the golden Financial Services Licences will place greater restraints on what their financial planners can and cannot do in an effort to reign in some of their vicarious liability for everything and anything that a planner does under their licence. It means that planners spend more time trying to clarify what they are not saying than getting to the point of saying what they want to say.
By now, you are beginning to doubt me, and to think that perhaps i have had one strong espresso too many?
OK… i’ll get to the point a bit more, and it is clarified quite a bit when we turn to professionalism.
You see, professionalism results in greater levels of education, ongoing compliance and the like, along with a requirement for greater levels of insight and much cleverer recommendations. i am being quite flippant here but the way to look at this is to consider what the average man/women/entity actually wants from a planner.
Most folk want straight-forward explanations of the financial issues that they face, along with a quick overview of the key options that they could follow to meet their desired goals. Not everyone wants all their issues solved in one visit or by one planner. Lots of folks don’t even know what they want, and just need to sit and talk through their issues to work out where to start.
In other words, the ASIC moves to reduce the requirements for the provision of basic advice are very, very sound – as they help address a massive failing in the existing regulatory framework. The problem is that this is achieved by favouring one component of the industry over another – ie, by allowing Industry Super Funds and their associated networks to provide something that is more difficult for the bulk of financial planners to provide.
“That is a good thing”, you could argue, as planners charge commissions and brokerages and charge hidden fees and receive under-the-table hidden incentives (quite a bit of that is pretty much true) and can’t be trusted (not true) and therefore are going to be much more expensive than the super fund services will be (pretty much not true – just look at the costs and charges for the industry fund. They aren’t much different from the costs that Wealth & Security Planners charges – we just cost it in a different way).
All this prices the ~12,000 financial planners in Australia out of the reach of the average Australian. In fact, there have already been calls within the industry for planners to “dump” average folk and concentrate on the “HNWI’s” (High Net Worth Individuals). All well and good but it is not what i remain in this industry for, and i see it as a polarisation that is NOT in the interests of Australian society as a whole.
Planners have been pilloried at every turn of late, and this will result in them providing their services to less and less people. In a more intricate world with more bullsh*t available fresh-to-your-door every day, i do not see this as being a good thing. i personally do not aspire to act in the manner of a Lawyer or a Doctor or an Accountant – especially as it refers to fees. The business of a planner is one of communication, and this is not achieved efficiently when working on an hourly rate.
On pondering this note a bit, it seems that i have wandered from point to point. Let me recap:
- ASIC’s changes are a good thing
- ASIC’s changes do not apply a level playing field with the application of the legislation – and this should be the next step
- Financial planners are only more expensive because of the wider scope of their activities – and this is mandated by calls for professionalism and liability issues
- “Industry Funds” providing advice are unlikely to be able to do so at a much cheaper rate than (when considered in its full context) the average financial planner.
The amusing aspect to this (for those who watch long term business and business trend cycles) is that this action will most likely end up with an increase in the long term costs of Industry Super funds, something along the lines of the changes to the mutual life offices of the past.
As usual, feel free to disagree, correct or comment.