Poor form on reform
Turns out this might have been a bit glib. The difference is you might find a financial adviser who isn't one. At least a doctor or dentist is qualified and there are heavy sanctions for impersonations.
Advisers will have to be licensed after July 1, though how to find the best one is still a good question. But since you could be giving away your most intimate financial secrets, or - possibly worse - not have any, empathy would have to rate highly, I imagine.
Unfortunately, being reassured that somebody is a fair-dinkum financial planner doesn't necessarily mean you'll get what you want.
Don't expect an adviser to give you a hot share tip - one who does is bound to be suss.
Nor do the government's reforms, such as abolishing commissions paid to advisers and insisting they act in your "best interest", require the advice to be useful or affordable. So long as there's to be no conflict of interest, ASIC as enforcer is happy.
Perhaps that's just as well. Volunteers secretly sent by ASIC to randomly selected planners for advice only took it if they liked what they heard. One volunteer who wanted to retire early even rated being told to pay off the mortgage first as bad advice.
Although the reforms were prompted by the collapse of Storm Financial, which incidentally offered clients a choice of commissions or fee for service, I'm blowed if I can see they would have made any difference. You can't regulate against bad advice. Or greed on either side.
It was Storm's close links with the big banks that got its clients into strife - and that's the financial planning industry's real problem, which will only be exacerbated by a slew of new regulations driving smaller, non-aligned planners out of business.
Storm encouraged its clients to borrow too much. But it's still in the career interests of even the most well-intentioned bank-owned planners to push the products - usually a managed fund - of its parent.
Sometimes banks have even roped in independent planners by providing them with a so-called platform or wrap, which is a sort of shop front of financial products, only with an entrance fee to be shared with everybody but the client.
Frankly, whether there are commissions along the way isn't the main problem.
Besides, advisers will still be able to charge an asset fee. Since the more you invest the bigger the take, so the more incentive an adviser has to sell you a managed fund. You tell me the difference between that and a commission.
Annuity providers sure can't. They're going to pay advisers what they call an implementation or placement fee for drumming up business, which is the same amount, down to the last cent, the commission would have been.
Which reminds me, commissions will continue on anything sold before July 1.
So it's in the interests of those advisers on commissions in ASIC's firing line to lie low. Any change to a portfolio, even if there's a problem with it, or additional advice would shoehorn them into the new regime.
Trouble is, a proper financial plan already costs about $2500 and a lot more if your financial affairs are complicated. Incredibly, this isn't even tax deductible.
And never mind the new regime will depend on strict enforcement by ASIC, which has a habit of shutting the stable door after the horse has bolted.
Frequently Asked Questions about this Article…
From July 1 advisers will have to be licensed, which aims to raise standards. However, licensing alone doesn’t guarantee helpful or affordable advice — it simply ensures advisers meet regulatory requirements, not that the advice will suit your needs or be free of bias.
Abolishing commissions is intended to reduce conflicts of interest, but the article notes it won’t eliminate incentives. Advisers can still charge asset-based fees or implementation/placement fees, which can create similar incentives to sell more or larger products.
Asset-based fees charge a percentage of the funds you invest, so the more you invest the more the adviser earns. The article argues that this can be nearly identical in incentive terms to commissions, because both encourage advisers to promote managed funds or larger portfolios.
Yes. Commissions will continue to be paid on anything sold before July 1, so some advisers who receive commissions on existing products may be reluctant to recommend changes to those portfolios.
ASIC is the regulator expected to enforce the new rules. The article expresses skepticism, noting ASIC relies on strict enforcement but has a history of acting after problems occur, and covert checks showed volunteers sometimes accepted advice only when it matched their preferences.
Bank-owned planners often have career incentives to recommend products from their parent bank, like managed funds. Banks may also provide platforms or wraps with entrance fees shared among providers, which can steer clients toward in-house products rather than purely independent recommendations.
A proper financial plan can already cost around $2,500 and can be significantly more if your finances are complicated. According to the article, this cost is not tax deductible.
The article suggests reforms won’t eliminate bad or greedy advice. You can’t fully regulate against poor judgement or self-interest, and tougher rules may push smaller independent planners out of business, potentially reducing choice for investors.
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