FDS: The real problems

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Despite an overall positive outlook from advisers for 2013, 95% still see challenges posed by FoFA reforms, and FDS obligations make up a large portion of the concerns.

The top challenges for planners are around client opt-ins, administering fee disclosure requirements, and the compliance burden arising from FoFA, according to Investment Trend’s Planner Business Model Report.

The FPA has already highlighted that FDS requirements are placing onerous obligations on planners, and will try to stop their retrospective nature as well as getting greater flexibility around the 30-day provisions.

Dante De Gori, general manager of Policy and Government Relations, says that from the beginning, a major analysis has been missing.

“You need to go back to fundamentally look at what obligations do advisers have today, what’s missing, and how can you expand or correct them to cater what the FDS is designed to do,” he says. “If the outcome is then the FDS that’s fine but that analysis was never done.”

De Gori says that it’s not about avoiding the FDS, but integrating something that sits on its own, into the current practises and obligations that advisers already have.

FPA CEO Mark Rantall says that fee disclosure statements and opt-in were effectively made redundant by banning commissions, making fees transparent and negotiating directly with clients.

“This additional requirement as something that the adviser has to do is very hard to systematise, particularly where it has this retrospectivity to it.”

Investment Trends Senior Analyst Recep Peker said that in previous years, opt-in had been the major concern for planners, and how they would be able to provide affordable advice to lower balance clients.

“They have now finally awoken to the administrative burden posed by the annual fee disclosure requirements, with the proportion citing this as a challenge jumping from 12% last year to 48%,” he said.

According to the FPA, the flexibility of the FDS requirements is a big issue, particularly when client reviews don't align with when the FDS is due, and the 30-day provision needs to provide more space.

Justin Brand, owner of Arc Financial Consulting still has questions around the FDS, which he put to planners on social media.

“How many advisers do you think are listing commission they receive on their FDS?” he asked readers. “And do you think the FDS will improve the regularity of reviews and quality of ongoing service? Will clients even read it?

“Should a client with an ongoing advice fee too small to justify a review be charged a fee at all?”

He said that some advisers had been ‘agonising’ over what fees should be disclosed, rather than disclosing everything they are paid. “In addition, there seems to be a focus by some of us on how much it costs to disclose the fees, but if we can’t work it out easily, how can the client know what they are paying?”

For planners looking to get rid of the FDS altogether, he says an annual review with a renegotiated advice fee within 12 months would negate the need for the document.

Are you sorted with your FDS obligations, or do you still have questions? Share your thoughts below.

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  • James Smith on 23/08/2013 2:58:15 PM

    Matthew Lock it would also be helpful to understand where you are communicating from. The offices of the Industry Super Network ? The PR office of Kevin Rudd ? Happy to disclose that I am a self employed financial planner sending this from my office.

  • Pat on 23/08/2013 1:31:42 PM

    Matthew Lock: can you please explain, specifically, how the provision of FDSs will help avoid all those events you have listed?

  • James Smith on 23/08/2013 11:18:23 AM

    That is quite a list Matthew. Unfortunately FOFA will not address any of these criminal acts. Perhaps you could compile a similar list of internet frauds , street crime, hospital patient errors, tax evasion etc over the last 12 months.To be consistent you then need to claim that we have a crisis in our streets, crisis in our hospitals, crisis in our tax system, crisis in internet trading etc Sounds like you are ready for a career in journalism ( if you aren't there already ! )

  • GAB on 23/08/2013 10:36:38 AM

    Well Matthew, one thing is for certain, the current legislation is not working if you look at those little horror stories. I am sure there are thousands of untold good stories but of course, too many to print. " breaking news: a financial adviser helped a client meet his retirement goals and is living it up traveling around the globe". In further breaking news: " a financial adviser has successfully protected a family's house from mortgagee possession because the deceased husband had a life policy recommended to him".

    Let's just get on with the job instead of being burdened with reasons not to help clients.

  • Matthew Lock on 22/08/2013 4:55:45 PM

    "Crises...What Crisis" I hear you say...all this legislation isnt neccessary...everything is fine!

    21 Aug A former authorised representative of non-aligned AFSL WealthSure has pleaded guilty to 22 counts of using a false instrument…

    16 Aug A former Queensland-based authorised representative of Lionsgate Financial Group has been permanently banned….

    16 Aug The Financial Ombudsman Service has castigated Chambers Investment Planners for inadequate advice and risk profiling…

    13 Aug The Federal Court of Australia has upheld the Australian Securities and Investments Commission’s (ASIC’s) appeal of Macquarie Bank’s $82.5 million settlement with former Storm Financial investors.

    09 Aug A Victorian insurance broker has been sentenced to 18 months in jail after stealing more than $662,000 from clients…

    05 Aug A Perth-based insurance broker has been permanently banned after misleading behaviour that put a client at risk…

    05 Aug A former Sydney-based mortgage and finance broker has pleaded guilty to six charges of making false statements…

    02 Aug A $3.5 billion fund manager and investment adviser has entered administration, with Ferrier Hodgson appointed…

    01 Aug An Australian Securities and Investments Commission report has found many mid-tier licensees are not checking the credentials….

    31 Jul ASIC has cancelled the Australian Financial Services Licence of a Perth-based securities dealer and financial adviser for….


  • James Smith on 22/08/2013 1:19:30 PM

    Alistair the ALP have self destructed and will pay the price for their ineptitude and yielding to the union powerbrokers. It may take decades for them to recover now that their spots have been well and truly exposed.We now need to focus on repealing laws that were clearly done to serve the purposes of the industry funds and have a united voice that recognises our different approaches to servicing our clients. We should stand up for the standards we already achieve and reiterate that good old fashioned advice and customer service remains the cornerstone of our industry - no matter how you package it up.

  • Alistair on 22/08/2013 12:49:00 PM

    What an absolute farce FOFA, FDS, Opt in and the nonsense this government has created is. Again yet another example of not thinking the issues through, pandering to the Industry Funds and Union nonsense.
    Real issues forgotten such as for example...What on earth does advertising have to do with the Sole Purpose Test of a superannuation fund ? And what of the lack of accountability and of holding trustees of these union funds to account under corporations law. And of course the public are fooled into thinking that all advice can be provided for $1 per week via the industry funds...so therefore we as advisers must be thieves....
    The nonsense of FOFA is now placing excessive costs on our FP business.
    Take this a step further, the excessive nonsense in so called regulation for business of which since the 2007 election, there have been more than 22000 bits of such nonsense across a variety of industries. Name the sector and you will find costs rising. Child care, Telecommunications, IT, Automotive, construction, pharmaceuticals and of course financial services.
    They do not understand that if business falters, has low to nil productivity and is not profitable, then people do not work....its that simple....deficits and debt will rise accordingly as your tax income decreases in an economy.....long after these morons have retired and have bought that house for $1.8Million such as Gillard with a pension for life at more than $350K per annum for her and her partner.
    An incompetent pack of intellectual derelicts as is this government who could not run a canteen let alone a country and their kind have combined to bring this country and its people to its knees.
    Surely, their can be no greater cruelty inflicted on a people of a nation than poverty.
    Yet this lot do not care. Our clients now face compromised savings outcomes be it via super or simply money in a bank account. From us they face rising costs for advice, our businesses and their value which as a 27 year veteran I have worked so hard for is compromised and for what I simply ask.
    This is without doubt the most inept and incompetent bunch of fools Australia has ever had.
    For those in FP land. Perhaps we should unite as one and advise our clients to NOT VOTE FOR LABOR. Or else, that other corporation called Australia and its shareholders, us, are in trouble....serious trouble....

  • James Smith on 22/08/2013 12:31:56 PM

    Justin Brand's comment that questions whether a client with an ongoing advice fee too small to justify a review should be charged a fee at all highlights an incorrect assumption made by some planners that adviser fees are for a face to face review only. While many clients will require at least one face to face review pa , others will prefer contact via phone or email. Particularly inter state clients, aging clients and time poor professionals. The fixation on face to face reviews also assumes that all matters for a client can be dealt with in a particular month of the year. So what happens if markets crash 11 months before the clients next scheduled review ? What happens if their partner dies, new legislation is introduced, funding is required for a project or family member in need ? Do we tell them to wait for their annual review ? Justin you may run your business that way but please do not make assumptions that other advisers want to run their businesses that way. It is also the prerogative of the adviser to decide on the level of fees charged for each client relationship - be that higher or lower than whatever you charge.

  • Peter O'Toole on 22/08/2013 12:07:21 PM

    FDS, which seems to have come out of left field as a surprise addition to FoFA, are cumbersome, time consuming & at least to a significant degree duplicate what is already being disclosed. More & more repetition does not help consumers. As Dante indicated the requirement for FDS does need to be rationally justified or in my view it should be scrapped.

  • James Smith on 22/08/2013 10:00:11 AM

    De Gore has hit the nail on the head. With a new government approaching the analysis that should have been done before FDS was implemented should now be done. Reporting on bits and pieces of a clients wealth management fees serves no value to the client. They would be better served by a statement showing all the fees they pay from all parts of the value chain. We need more transparency and clarity from industry funds and retail super funds on what fees they are really charging. They should be summarised on one page in a standard format with penalties if fees are not disclosed. We need to see an end to the $1 a week rubbish where fees are hidden by being deducted out of earnings. Referring clients to pages in a PDS is also unacceptable. And asking advisers to spend time to produce a statement with their fees only ( which have already been disclosed in a Statement of Advice and agreed with the clients via an Authority to Proceed and updated when new advice is provided ) makes no sense given of all fees in the value chain these are the fees that are best understood by clients.

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

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