Australia’s “Future of Financial Advice” reforms, which are a down-under equivalent of the FSA’s RDR initiative, are under attack. The big adviser firms are resisting the one regulation they hate the most – the opt-in for ongoing charges.
The opt-in is a device whereby clients who have agreed to ongoing charges have to re-confirm this agreement every year, in effect opting in to the agreement each time. This gives the consumer an opportunity to stop paying if they feel the advice is below par.
Up to now, clients who wanted to pay by allocating the adviser a percentage of the funds under management set the percentage and basically forgot about it. The adviser was left with a revenue stream that continued onwards ad infinitum without necessarily having to justify his or her charges. Inertia on the part of the investor could be counted on to maintain the revenue stream without effort.
The Government therefore decided that an annual opt-in was required. This would serve as a reminder to the client that they were paying fees and would galvanise them into assessing whether they were getting value for money.
However, the big players in the financial advice sector are pulling every lever in an attempt to derail this component of the regulatory changes. It’s hard to see any logic in their argument other than a selfish desire to retain the easy earnings that come from charging fees based on asset growth.
They point out that other professions do not have to do this, but as other professions are paid on a fee basis that involves actually handing over cash, this is not a valid argument. There’s nothing like looking at your credit card statement or writing a cheque to make you assess the value you’re getting.
The advisers also believe it will be an administrative nightmare. This is laughable. If they can’t manage to send out and process the reply for a single letter per year, clients should have grave doubts about how competent they are at managing investments on a daily basis in a volatile global fund market.
Sensing they are fighting a losing battle, they appear now to be pushing for a three year-delay so that they get three years revenue before they have to remind the customer of the charges involved. That’s a ludicrous introductory time for a once-a-year form-letter.
In the interest of the consumer, and the reputation of the financial services industry as a whole (not currently highly rated), the government should resist this pressure and press ahead with its plans.
Incidientally, isn’t it strange that with all the regulation the FSA came up with for the UK, they never hit on this simple and valuable change?