by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
News Bulletin : ADA News Bulletin April 2011
43 APRIL 2011 Some may argue that there is nothing wrong with an adviser selling the parent company’s products as long as the client is not disadvantaged in the process. So if the product of parent Company A is equivalent to that of Company B why not sell your own company’s product. Senior managers at AMP Financial Planning have justified the product bias of their advisers to me using the following analogy. “If you go into a Ford dealership you do not expect to be sold a Holden so why should it be any different when you are buying a financial product. If you come to AMP chances are you will be sold an AMP product.” If the products being offered are equal then I have no problem with this logic. However, in many cases this limitation on products can work against a client’s best interests as large organisations can be slow to innovate and the best product may not always be available via the parent company’s platform. WHAT dOES fInAnCIAL SERvICES REfORMS REALLY MEAn fOR THE COnSUMER? If you agree with my premise that there is really very little ‘independent advice’ available then how will these proposed changes help investors. The cynic in me feels that whilst the proposed laws are designed so the consumer may have more power to determine the fees they pay, the end result could be that the bank-owned financial advisers will act as ‘gatekeepers’ and will simply charge percentage based service fees to customers to access products on platforms owned and operated by their employers. Those clients who refuse to pay these ‘adviser access fees’ will simply become orphan clients that are severely limited in the products they can buy or alternatively they will be charged high transaction fees by the product provider for service and access. Unless there is a dramatic change in the current distribution methods employed by the industry then clients will be forced to use an adviser and pay ongoing percentage based fees accordingly. Asset based fees are by nature percentage based and are more difficult for consumers to understand and negotiate. Asset based fees are also particularly problematic in long-term investments such as superannuation because they compound over time and can significantly erode an investors’ wealth as opposed to the one- off dollar based fees. In 2009 Rice Warner conducted research that found where consumers pay for advice on a fee for service basis rather than ongoing percentage based fees the cost of that advice can be up to 13 times less. Whilst industry super funds and Choice rabidly attack the current state of the industry the fact remains there are large number of Australians who are disengaged with their superannuation and investments. Distrust of financial advisers and banks, coupled with high profile scandals where no one seems to have been prosecuted, have tarnished the reputation of the financial services industry. The solution lies not solely in more regulations but rather regulation coupled with greater emphasis on personal ownership of your superannuation assets and the financial education of Australians. CAvEAT EMPTOR REqUIRES KnOWLEdGE Of WHAT YOU ARE bUYInG The financial services industry needs to give Australians what they want and the current one size fits all – full advice or no advice model is simply not what consumers want. This is illustrated by the fact that the fastest growing area of investment is the self directed investor. Disillusionment with banks and financial planners has resulted in more and more Australians taking responsibility for their own investments. The principle of caveat emptor or buyer beware is perhaps one of the oldest principles of business and commerce. To me it means you need to understand what you are buying before you can assess whether or not you are paying a fair price. In my opinion investors need to be able execute their investment transactions without being required to use an adviser. The ability to directly access investment products allow investors to access and pay for truly unbiased advice on their terms when and if it is required. In short, investors want their products and their advice unbundled. The second thing investors need is access to tools and resources that allow them to monitor their portfolio in real time in order to assess how their investments are performing. If you applied the principle of caveat emptor to the purchase of financial products and advice then the first thing you need to understand is what is involved in the financial planning process. The steps involved can be broken down as follows: • Identify goals, investment objectives, risk tolerance and time frame. • Determine the appropriate asset mix or asset allocation to achieve goals. • Choose specific investments products that match the objectives and risk profile with the correct asset mix – research. • Select individual funds or securities and implement. • On-going monitoring and managing investments in real time in order to incorporate changes to your personal situation or risk profile. The domination of the financial services industry by a handful of banks and insurance companies has all but eliminated the independent adviser. Financial advisers have created a service offering that puts the above process into a legally compliant and costly package that is passed off as a customised financial plan. This is not entirely the fault of the industry as the current legislation has necessitated the creation of systems that ensure all of the above steps are thoroughly documented for compliance purposes. Good financial advice can be invaluable but the current method of delivery is flawed in that not all investors need, want nor can they afford this ‘full meal deal’ of advice. The typical investor wants someone who they can trust to assist them when they have questions or provide a means of confirming their thought processes and investment decisions. They do not want to turn over the responsibility for their future wealth entirely to an adviser particularly one whose independence is questionable. Nor do investors want a computer generated financial plan that recommends putting all of their investments on a platform that is often owned by the adviser’s employer and locks them into an adviser relationship on an ongoing basis. For over 20 years I have answered investors’ questions and the majority of those questions are of a technical nature involving issues like tax, superannuation contribution rules or questions about gearing. Whilst this technical information is very important it is not generally available. Advisers today do not have a means of providing this limited advice due to liability concerns. So what is the solution? Imagine if you could have access to the same tools and investment products as your adviser without having to pay ongoing adviser fees. Then you would have the power to access advice on your terms. After careful consideration, I believe that investors need the following tools and resources in order to be self-directed with the option of paying for advice. These tools include the following: • direct access to an investment platform/product that allows investors to execute their own investment transactions. This direct investment insight
ADA News Bulletin March 2011
ADA News Bulletin May 2011