The FSC has admitted it is still unsure how many clients will be turned off by having to pay upfront fees to use a financial planner when FoFA kicks in next year.
With clients having to pay approximately $2,500 upfront for financial advice, FSC CEO John Brogden says FoFA could create a large chasm in the market.
“When the conversation changes from ‘we can take 1% out of your bank balance’ to ‘that’ll be $2,000’, we’re still not sure on how the customer will respond,” he said.
“We’re not just saying this will cost you more, we’re saying this will cost you more and you can’t pay the way you used to pay, for some people.”
Brogden says FoFA was designed to deliver on two things: To reduce conflicts in advice, and to increase the accessibility to advice.
With the difference in cost between intra-fund and fully tailored individual advice, he believes a large group of potential clients – those who receive a modest inheritance of around $50,000 for example – won’t get the help they need because it’s too expensive.
“It’s that group of Australians that don’t get advice now… that we’re very keen to see get advice. And at the moment we’re not confident that FoFA will allow that to be delivered,” said Brogden.
He said current legislation requires advisers to have a very significant conversation with clients, which doesn’t address the simple questions but costs more.
Fear of breaching the best interest duty means advisers are asking a hundred questions instead of just 10, he says.
Brogden said that FoFA will have to pass a simple test to prove its success, and that is – are more people getting advice?
“Not ten thousand more, but hundreds of thousands more of Australians getting advice.”
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GAB on 11 Dec 2012 01:48 PM
It's okay Rob, because now their friendly accountant or industry super rep can help them out for a small or no fee. That's the overall intention of FoFA...price the licensed financial planner out of the market with excess legislation and requirements. Only the wealthy can see a financial planner, the rest go elsewhere....that is the plan
Stephen on 11 Dec 2012 02:16 PM
This does suggest that tiered advice could probably be introduced. Certain people might just need the basics explained to them for a reasonable fee based on their financial knowledge. The SOA could be based on a simple solution that covers fundamental solutions such as basic or intermediate tax advice and the time value of money. I suggest that as a sort of whet their whistle approach. They might be interested in learning more once they understand some of the finance complexities and, therefore, the planner could then explain the costs versus the benefit and introduce them to advanced solutions.
As far as avoiding potential clients, that is very foolish as how can you make the judgment? I know a couple of BMW sales persons who have lost sales because they did not like the look of the customer and did not let them take the car for a drive.
I still think that financial advice should be a tax deduction.
Pat on 11 Dec 2012 02:57 PM
Interesting when you look at the $50k example given: 9 times out of 10, the best advice will be to allocate the money to an offset account attached to their mortgage and/or put the money into super. If the client has an adequate super fund (which simply means a low cost option), the need for a 50 page SOA is mitigated.
Pat on 11 Dec 2012 04:08 PM
@Stephen - the idea of a tax deduction for financial planning fees has obviously been raised many times before. The problem is that this does not really make much of a difference for the 'average' Australian on a low tax rate. This doesn't solve the accessibility to advice problem. What would be more equitable yet more difficult to implement (potentially) is the use of a tax offset for advice fees paid to an AFSL holder.