Advice orphan clients a ‘sad indictment’
It is a sad indictment that many orphan financial advice customers are now sitting in products without access to much-needed professional financial advice because of the self-interest exhibited by lobby groups, including industry funds.
That is the assessment of long-experienced financial planning business broker, Paul Tynan, who claimed the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry had failed to understand the role of commissions-based remuneration.
He said Australia now had millions of consumers on platforms, in products and with insurance companies and fund managers who had no access to the much-needed services of professional advisers.
“They [the consumers] have every right to ask how decades of government led reform and industry rationalisation that was supposed to enhance greater access to advice, deliver better products, reduce costs and improve service has failed them so catastrophically,” Tynan said.
“The Haynes Royal Commission has resulted in more regulation and over compliance which has seen costs to the customer reach record levels, the number of advisers’ plummet to 15,000 and consumers unable to access and afford advice in an era of legislative and regulatory complexity.”
“At the centre of this perfect storm were the self interest groups and their fanatical obsession and belief that commission based remuneration structures created a conflict-of-interest situation. This tunnel vision and lack of marketplace awareness resulted in banning of commissions and fast-tracked advice becoming an elitist service that’s unaffordable for most consumers.”
Tynan said it was common best practice for businesses across the globe to incorporate commission into product development as a means of funding distribution and its associated cost.
“This structure still dominates many industries including professional services, manufacturing, health, general insurance, motor vehicle, real estate, etc.”
“The institutions initially benefited as the number of orphan clients grew, and they (orphan clients) became major profit centres. Inside the institutions, orphan clients were referred to as ‘rivers of gold’ as they were a source of a very lucrative administration fee.”
“These same institutions are now rapidly jettisoning their wealth arms as over regulation has made it too hard to do business in this current environment.”
I’m sure you’ll get a varied response to this article (Commissions) regardless of those, yes the out come has been very poor for consumers.
For example the North platform had 4 billion in orphaned FUM (probably including BOLR buy backs etc.)
And regardless on net increases of advisers, it will take 15 years for numbers to recover (If they ever do)
After the peak retirement /education wave that is yet to wash through in the next 2-4 years plays out.
Probably dropping numbers to 13,000
Way less than 10,000 says the smart money. What many neglect to count are the entire force of risk advisers that will cease to exist in the next 2 to 3 years. Criminal what unelected lobby groups and clueless politicians have wrought on our advisers, clients and our once great industry. Nobody will ever be held responsible for the adviser suicides either. Beyond reprehensible.
The RC was set up with one intention and it did that.
I’m currently refusing to provide advice to 3 in 5 new clients which shows two things (1) I need to change my marketing (2) advice is unaffordable for the majority of people. The sad part is when you know those clients are in high fee and poor performing products and you can’t assist in a profitable manner so you don’t meaning they have less funds at retirement than they would with advice.
In relation to any retail insurance clients, it should be the responsibility of the product manufacturers to appoint a new adviser to those clients and if needs be this should be regulated or legislated.
It is outrageous that these orphans have been left without advice assistance.
Any appointment of a new adviser for ongoing advice will require (at least) an initial Statement of Advice to be provided, which will be costly and time consuming. Many advisers will not have the ability to provide that service without compensation, and it would still be the ” advice is too costly” issue. It will be a continue to be profitable to the life offices and other providers, at least until those clients cancel or transfer their business elsewhere.
It was extremely short-sighted on the part of product providers and law makers.
As you said… “outrageous”
Well said. The proof of the pudding as they say is in the eating… What makes it really sad is that there were many experienced advisers and others saying that the ingredients were out of balance right from the beginning… where we have landed was quite predictable and shows no sign of turning around any time soon. The damage through lack of access, will arguably be worse than the problems which the powers that be set out to ‘fix’ in the first place…but no one will ever know as those who are damaged by it wont realise or know who to compain about…
Well Surprise, Surprise, we warned everyone that this would happen back when the Government started to play with the industry, the banks wanted the self employed advisers gone, the industry funds only want their customers (not clients) to ring their “call centre” and the AFA/FPA sold us out to the highest bidder. The LIF & FASEA reforms and now the QAR are smoke screens, the Industry funds ( now the financial muscle of the government ) and the BANKS want to see the self employed financial advisers wiped out, but the result is “Orphan” policyholders and members of superannuation funds that have no one to help them when they need it, and as usual the media wants to eat the cake as well as keep it. Well careful what you wish for because its not over yet.