OPINION: The end of IFAs?

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The financial advice market isn’t a level playing field, accountants are taking away client control and revenue and  Mark Bouris is a great Australian success story, say AIOFP executive director Peter Johnston.

Our market will never be a level playing field whilst we have cross-subsidisation of the advice function by platform or SMSF administration revenue. Thankfully Treasury has recognised this reality and intervened in the FoFA direction.

We are great supporters of the SMSF market but we should not lose sight of the fact that accountants have taken the revenue and control of clients away from the institutions and given it to themselves by recommending that they establish an SMSF structure.

What is the difference in conflict and self-interest terms if you have an adviser recommending their favoured platform because they get a rebate/dividend, and an accountant recommending an SMSF because they get the fees? Absolutely nothing.

In fact, I would prefer my money to be in an institutionally-owned platform, rather than with an accountant if some type of fraud takes place. With all due respects to our accountant comrades, there are a lot more accountants in jail for fraud than advisers, and institutions do have a habit of settling problems to avoid brand damage.

Treasury also recognised that the demands on the true independent adviser [i.e. no cross-subsidisation from product or SMSF revenue] were simply unrealistic. How is an adviser going to survive in a market on an hourly rate with a public that has only ever known so called ‘free services’ on advice from institutions and SMSF sellers taking admin fees and masquerading as ‘independents’?

It’s extremely hard. That’s why some are predicting the end of the true independent. Further exacerbating the conundrum are papers like former Chief Justice Jim Spigelman’s Tyranny of the Billable Hour which virtually says professionals charging hourly rates cheat their clients with ‘slow work’ and over charging to meet budgets. How can an independent adviser survive in this environment?

We all agree that product commissions are a conflict and should be abolished, but the whole issue is confused by ASIC classifying platforms as ‘investment products’. This is an issue we have lobbied Senator Cormann on.

Platforms are administration services period. SMSFs are an administration platform and so are industry funds – and they all subsidise advice. Thankfully, Treasury has intervened to sort out the absolute political hypocrisy and opportunism that swelled around this issue.

Recently we had YBR’s Mark Bouris at our conference to talk about market domination by the institutions, and how he not only survived but made hundreds of millions personally from the risks he took when he sold Wizard Home Loans.

What a great story from a person many are a little envious of. His message is very clear, we independents are very much a minority in a market that’s 85% dominated by the institutions, and we all must unite to create the fifth pillar to survive. Just for the record, Bouris thrilled the audience with his humble and affable approach and displayed why he is a great Australian success story.

Do you agree with Johnston's sentiments? Have your say below.

  • Peter Johnston - AIOFP on 20/11/2012 9:42:24 AM

    Just like to point out that in 2007 the then Minister Nick Sherry spoke at our conference and stated that around 35% of all SMSF were established for the wrong reasons.ie accounting/audit fees. There are many good SMSF advisers and in any industry/profession the bad eggs. George you are missing the point. SMSF's have become the 'accountants platform' and your behaviour mirrors advisers with traditional platforms. Not saying it is wrong, just pointing out that 'platforms' should not be considered as 'investment products' but a preferred administration vehicle for advisers where they earn fees to fund their practice.

  • Michael on 15/11/2012 11:09:08 AM

    George, could not agree more. That's why the AIOFP just changed its name and enshrined some years ago that Premium Advisers must be independent and charge the client rather than be paid by the insto.
    The genuine SMSF solution is an adviser service that can provide both financial planning and accounting services without being locked into any one type or source of investments. Not many of those around at the moment.

  • George on 14/11/2012 11:26:57 PM

    Accountants own the clients because clients trust accountants. They trust accountants because they are qualified, properly trained, have professional standards and honest. They are not sales people driven by commissions and hidden fees from platforms and managed funds like most planners, especially those that are owned by an institutions. Eventually planners will come out from under their rock and become a profession rather than a rabble. They will stop being sales people and become properly trained advisers. Then somebody might trust them. Until then, accountants will own the clients

  • Jonathon on 14/11/2012 5:59:50 PM

    So what about the accountant who does not give advice but is simply instructed to setup a Fund and handle the annual admin because the client wants to control their own super. Then all your points become irrelevant and redundant. The client has simply exercised their right to choose and has not been pushed into a product they do not want. This is the point that sulking advisors miss. The market today wants freedom to choose not be told by so called advisors where to put their money. Technology and innovation is making it easy for clients to control their super and if advisors do not wake up and recognise this technological change they will be left behind.

  • Tony on 14/11/2012 1:04:34 PM

    If the pharmaceutical companies owned 85% of the GP practices there would be an outcry over which drug was prescribed. Yet we don't see the inherent conflict of any product manufacturer also funding the professional adviser.
    What's next? The ATO to take over accountancy practices and provide tax services.

  • Mark Di Pietro on 14/11/2012 10:44:01 AM

    Great article. Couldn't agree more. I can't believe Accountants can recommend rolling over a client's super fund to a SMSF without a single scrap of research being done into the existing fund. It's time they play in our space as well.

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