Advisers likely to shun marginal clients despite QAR
The proposals outlined in the Quality of Advice Review may not be enough to convince financial advisers to put marginal clients back on their books, according to participants in a Financial Newswire roundtable.
Asked whether proposals aimed at reducing the cost of advice by removing red-tape would actually work, the consensus was that it might only end up working at the margins.
While Infocus Wealth Management managing director, Darren Steinhardt said he believed the QAR proposals might bring up to a fifth of marginal clients back into scope for financial advisers, financial planner, Andrew McKee, said this might not prove to be the case.
“Maybe it might bring on some of those [marginal] clients but a large cohort would be very hard to service profitably,” he said.
The clear implication was that marginal clients would fall into scope for the superannuation funds.
McKee said he was not running a high-volume financial planning practice, so not looking to service marginal clients and he believed this was a common situation in the industry.
For his part, Steinhardt pointed out that he was not just a licensee but also ran a financial advice business and that under the current situation that business needed to generate $5,000 initially and “then on an on-going basis – anything less than about $3,500 is not viable”.
In doing so, he acknowledged that eh financial planning practice had let go a number of clients because they were no longer regarded as commercially viable to service.
“The number of clients we have let go or an active client to 2,126 over the last couple of years,” Steinhardt said. “If I look at some of the impacts out of this review things like how we can provide the advice and the documentation that alone should allow us to re-engage with half of those clients.”
He said that advisers working the practice were looking after between 100 to 105 clients each and that he believed the proposed changes might “broaden their dance card” by another 30 to 40 clients.
Madison Financial Services general manager, Jamie Johns said that the reality was that financial advisers would want to hold themselves to a level and not discount.
She said the question was whether the proposals outlined by QAR chair, Michelle Lavy would enable the servicing of a layer below that, noting that it would be dangerous to go too light on the regulations that protected advisers.
Morningstar managing director, Jamie Wickham said there was a big part of the population transitioning to retirement and needed help now.
“They are not getting any help or real support and they can’t afford $3,500 a year,” he said. “There has to be a way of supporting that cohort of the population who have a real news and there is no way of getting that to them today.”
Fiducian executive chairman, Indy Singh said the reality was that it cost money to deliver quality financial advice and that advisers should not be expected to deliver it for less than it actually cost.
It would be nice to see some more support for the QAR initiatives. They may not be anywhere near perfect, but they are a vast improvement on the current compliance tsunami crushing the industry. How about we support Ms Levy and then when some positive changes are implemented, we gradually push for more. Give the nitpicking a rest for a while. Some of us need some relief and would appreciate any reduction in paperwork we can get. The QAR is handing the industry a proverbial winning lotto ticket and we’re complaining about the cab fare to go and pick it up.
Allowing super funds to service clients we advisers cannot afford to, is not a bad thing either. Super funds are not competition for advisers, as they cannot offer holistic advice to HNW or even mass affluent client. Even if they could, where would they get advisers from with so may exiting the industry of late.
Lets get on board with the big changes and do the fine tuning later.
At this stage QAR is airing multiple proposals for feedback. Most of the proposals are quite good. But a few are quite bad. During the feedback stage there is nothing wrong with saying those few bad proposals should be dropped from the overall package. It doesn’t have to be all or nothing.
As for “fine tuning later”, that rarely happens in a timely manner. Much of the rationale for QAR is “fine tuning” the mistakes of legislation introduced decades ago. Let’s fine tune the proposals now while there is opportunity to do so, rather than implementing more bad legislation that takes decades to fix.
Fair enough but I think it’s wishful thinking to assume we can fine tune them beforehand. More likely, the laws will remain the same if there is too much push back. I’m interested in what bad legislation you refer to in the proposals (I can’t see anything other than minor issues that are easy to overcome with common sense). Over compliance only hides bad advice. Having the advice front and centre, and not buried in a 60 page document means it will have to stand on its own two feet. And the idea that SOAs protect license holders is fallacy. A judge could are less what the disclosure documents say, as they know the adviser understands them a lot more than the client. There is a clear imbalance and the courts know it. Let’s be judged on the advice and let’s remove the compliance quicksand so we can deliver that advice faster and to more clients. Our compliance audits might also judge the advice and how it suits the client rather than how many boxes were ticked on the paperwork. The current arrangement is so bad (and the exit of almost half the industry attests to that), that any change should be welcomed. Don’t let perfection be the enemy of good.
One thing for certain, is that Treasury has heard the feedback, so lets keep providing the positive stuff. Tell them what we need rather than what we don’t like all the time. By the way, I’m only referring to the proposals to reduce the need for SOAs, ROAs and less FDS’ etc. I’m not against the education requirements and the drive for professionalism.
Anyway what will be will be. After what’s been thrown at us over the past 20+ years I’m sure most of us are battle hardened by now.
The worst element of the QAR proposals is allowing unlicensed bank and super fund employees to provide personal financial advice without meeting any professional standards or best interest duty. Levy is naively assuming they will be “appropriately” trained and supervised in line with the “low risk” advice they would be giving. Sorry Michelle (and Mick) but that is fantasy land stuff. If this regulatory carve out is implemented it will be abused by banks and super funds for conflicted sales and retention activity under the guise of “advice”. It will be a return to the bad old days. Not only will it be a setback for consumer protection, it will also undermine the recent progress financial advice has made in cleaning up its image.
All the QAR proposals about SoAs, FDSs, removal of BID from Corps Act (but not from CoE), ditching general advice category etc is all fine and needs no further tinkering in my view. But the proposal to allow unlicensed sales and call centre staff to provide personal advice must be strongly opposed now, so that it is ditched prior to the final recommendations.
I disagree on a few things but your points are well made and you have highlighted the risks. I just feel that the positives outweigh the negatives. The current situation is a massive negative in my view. I hope they can find a way to make positive change without opening up to ‘advisers’ with two weeks training.
Thanks for the debate. You argued your case well. Cheers.