Scaled advice to provide pay certainty

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ISN-commissioned research predicts that advisers and clients will make a marked shift towards scaled advice to make the most of FoFA changes.

As clients become aware of the cost of advice, those who are not regularly serviced by advisers (around 40%), will switch to receiving scaled advice on a piece-by-piece basis, says the Rice Warner report.

Advisers will also be making the shift to cover remuneration gaps left by FoFA. The average cost of advice is expected to reduce from $2,046 to $1,163, and the overall reduction in adviser remuneration is expected to be $2.7 billion by 2027.

Rice Warner predicts that the number of advisers giving purely scaled advice will grow from 350, to almost 1,500 by 2020 and 2,729 by 2027. On the other hand, advisers giving full advice – including scaled advice – are expected to drop from 17,746 to 15,689 in 2020, and 14,926 in 2027.

Many full advisers rely on substantial trail commissions and platform rebates to sustain their business, says the research. Remuneration structures for scaled advice will be very different, with a fixed salary and possibly a bonus depending on quality of work rather than sales and retention.

Dealer Groups are likely to offer scaled advice models, and are also expected to take a higher share of the adviser fee, as it will be more difficult to hold an adviser to a particular platform – their fee will be paid irrespective of the fund chosen. “This could lead to higher adviser fees but lower platform fees.”

The skills required for scaled advice will be different as it is more automated and provided over the phone rather than face-to-face. However, the selection and training is an on-going issue, according to Rice Warner. “The market has a shortage of appropriately skilled individuals with the desired profiles to provide assistance.”

The report states that the different type of work is “likely to lead to different people entering advice jobs and some existing financial advisers leaving theirs”.

What does scaled advice look like?

Scaled advice models have been structured around single issues, “based on the assumption that clients at similar life stages will often have similar goals and objectives”.

Typical groups are:

  • Young singles starting out in life – Require budgeting debt management and superannuation co-contributions.
  • Young married couples – Targets for voluntary super contributions and life insurance
  • Asset builders – Possible targets for salary sacrifice and higher levels of insurance
  • Mature people – May need to increase their superannuation
  • Transitional era – Require transition to retirement strategy
  • Retirees – Retirement income strategies

The price for scaled advice can vary anywhere between $200 and $1,500, but the research predicts an average cost of $275.

  • Pat on 25/07/2013 1:44:14 PM

    EquallyFedUp seems to think that DFPs, SOAs and other initialisations means that the scaled advice will be in the best interests of the client. What it actually means is that the advice may be adequate for the client as long as it means the client stays within the industry fund, even if that is not the most appropriate option.

    There is a big difference between scaled, conflicted advice and limited advice, where, for example, the advice is limited to the client's insurance needs.

  • James Smith on 25/07/2013 10:22:55 AM

    It is not correct to assume limited or scoped advice is the same as scaled advice or intra fund advice. The former has been offered by qualified advisers to limit the scope of advice where appropriate. This requires a professional judgement and mutual agreement with the client. Scaled and intra fund advice on the other hand remained ill defined and in the wrong hands will cause untold damage and ruin the reputation of an industry that has spent years building its professional standards.

  • GAB on 25/07/2013 9:41:46 AM

    I have no problem giving scaled advice....being doing it since day one. It was called limited advice and now called scoped. But if you go out targeting scaled advice and deliberately ignore some other issues.....it could spell trouble. I wouldn't feel too good about myself if I told a client to salary sacrifice more into super and then the next day they keeled over with a heart attack and I didn't consider their overall family protection. I'm pretty sure their estate lawyer could be onto me. It's a case by case scenario...aside from that, the industry has lost the plot big time.

  • Grumpy old man....not on 24/07/2013 3:43:04 PM

    So...for $200 will there be evidence that the ""call centre adviser"" has; educated the client about the difference between growth and defensive assets, confirmed that the client has a longterm investment time frame (even at age 60), confirmed that the client will not switch to cash at the first "correction"" and in the written SOA, provided a Replacement policy comparison of costs of the old portfolio compared to the new portfolio, before proceeding with implementing the switch?
    These are some of the things ""real"" Financial Planners need to do!!

  • Let's Get Real on 24/07/2013 3:07:14 PM

    An hours worth of 'best interest' fact finding and there goes your $200. What a load.

  • James Smith on 24/07/2013 3:00:20 PM

    And the research showed their is a shortage of appropriate skilled individuals to provide assistance ? So why on earth would anyone pay anything ( let alone waste their time and the cost of a phone call ) to ring up some random person for advice on their super ? It speaks volumes for the Industry Funds intent and lack of care that they will promote scaled advice in the absence of adequate support.And surely Rice Warner this should have been highlighted as the key weakness of the proposal.

  • Fedup on 24/07/2013 2:44:35 PM

    Equally Fedup
    You are doing all that for $200! Oh yes Im sure. Did you ever work out the cost of your employment (wage, super, car, your big flash building). Careful your hand might slip of and hit you in the eye.

  • James Smith on 24/07/2013 2:43:03 PM

    Equally Fed Ups comment that scaled advice will enable clients to get advice over the phone to switch from balanced to high growth for $200 instead of $2000 sums up the nonsense of the industry fund propaganda. So the phone caller knows nothing about the member and advises a change of investment strategy on what basis ? because everyone else is doing it ? because the media is hysterical about market volatility ? because my dad reckons its a good idea ? to avoid losing a member by getting them to switch to cash rather than take their funds elsewhere ?Rice Warner do some research on the Dalbar studies that highlight the failure of limited advice to deal with human emotions and investment markets. Agree that researchers and journalists that publish Industry Super Network propaganda without their own research define their own lack of credibility.

  • EquallyFedup on 24/07/2013 12:21:18 PM

    Do your research!
    "Not only that, but unlike planners, union funds don't operate under any form of governance and compliance. Do members really want to entrust their life savings to that?"
    Claptrap - Super funds offering scaled advice do so under the same AFSL licensing arrangements as regular financial planners and are therefore subject to the same governance and compliance. Not only that , there is also the superfund governance and compliance which also safeguards the process. Therefore Members who decide to seek scaled advice can be very comfortable with whom they are "entrusting their lifesavings" to. Providers of scaled advice will have DFP qualifications operating as authorised reps; fact finds are required; SoA's are required; members will be notified that the advice is for the single issue they call about; it is not an ongoing agreement for service; if they need more than this then they will be advised to see a financial planner authorised to provide holistic advice. What it really means is that a member calling their fund to ask if they should, for example, change from balanced to high growth can get that simple advice for $200 rather than $2000

  • Andrew on 24/07/2013 12:02:05 PM

    I was initially interested in the scaled advice concept as I believe we need to deliver cost effective advice and theoretically most of my clients come to me seeking advice on a specific single issue.

    Unfortunately the more Ive looked into this the more ridiculous scaled advice becomes. i.e. A desire by a client to increase retirement savings is not as simple as a recommendation to increase super conts. It generally needs budgeting advice to find the dollars, often salary or business income restructuring again to free up income, an examination of other assets and liabilities which also contribute to or diminish retirement savings. And these are just a few of the possible considerations. The final advice may be as simple as increasing contributions but to get there requires a holistic examination of the clients situation and goals.

    For my practice scaled advice is clearly at odds with a duty of care and unlike our industry fund colleagues I sleep better knowing Ive delivered value to my client.

  • Grumpy old man....not on 24/07/2013 11:57:44 AM

    It is good to hear these responses, as I thought it was just me with these feelings.
    I believe that it costing more (for a real financial planner) to provide advice due to the hoops we need to jump thru. EG I have a client who wants to rollover 8 super funds. I need to do research on 10 super funds. 8 existing, 1 recommended plus another I considered. Add up the time it takes to research each plus the SOA cost and tell me how much does the client want to pay for the advice?? Don't talk to me about the time/cost it will take to implement this!!

  • Phil on 24/07/2013 11:18:45 AM

    What a good laugh. The ISN commission research that states that all clients (typical groups) will only require advice on increasing their super contributions.

    Young singles need to take advantage of the co-contribution.
    Young married couple need to target voluntary super contributions
    Asset builders need to target salary sacrifice
    Mature people need to increase super.
    Transitional era need to commence a TTR.
    Retirees need to think about retirement (super) income strategies.

    How is this not viewed as an absolute self serving joke from the wider community?

  • pargo on 24/07/2013 11:10:37 AM

    Re: Fedup

    "We currently have a situation where if you go to the Labor/Union funds and ask for specific advice, you get it with no care and no responsibility."

    Not only that, but unlike planners, union funds don't operate under any form of governance and compliance. Do members really want to entrust their life savings to that?

  • Absolutely amazed on 24/07/2013 10:46:20 AM

    Scaled advice will be given over the telephone. How do I get an FSG down the phone line to the person? How do they consent in writing to the fee agreed to be charged. Don't I need to provide them with a written copy of my Advice or have SoA's etc now gone under FOFA. All for an average fee of $275. Where do they get these figures from?

  • Mel on 24/07/2013 10:18:25 AM

    No, absolute rubbish and not what is happening in the "real" world. I have never received a rebate, always been fee for service, and never received trail commissions. My fees are now higher thanks to stupid Whitely and his stupid union and stupid government mates. Scaled advice has always been available, called "limited" advice, its cost is now way higher too because of legislative red-tape. Advice for more people? Rubbish.

  • Fedup on 24/07/2013 10:10:25 AM

    That will be the case I believe. Not because it is a good idea. because it is not. We currently have a situation where if you go to the Labor/Union funds and ask for specific advice, you get it with no care and no responsibility. If you go to a planner, the planner has to collect all data, analyse the situation and make a call on wether there are other factors that need to be addressed and address these issues and then gets to charge for simple advice and where the risk of missing some potential issue. Why? Because this is what the client wanted. Only Labor/Unions could come up with such a situation. These are the same people, who when faced with the closure of an industry, due to their non competitive work practices (encouraged by the unions) call a strike to protest against the imminent closure. They just don’t get it and it seems, never will.

  • Wally on 24/07/2013 10:05:42 AM

    Rice Warner once again starts with a result provided to them by the industry super network, and then tries to make the data fit that result. How does Rice Warner have any credibility left. Scaled advice is a furphy. How can you offer recommendations on any of these examples without considering all the client's financials, goals and personal situations. Are we going to advise clients to salary sacrifice without working out if they can afford to, or move them into the growth option without considering a large share portfolio in their own name? To advocate scaled advice shows that you have no idea what real advice worth paying for is.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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