The swinging pendulums of IR and financial advice

Premium content

To access premium content, please log in or set up a subscription. It's quick and easy.

Connect with Alan Kohler on Google+

More from Business Spectator


Please login or register to post comments

Comments Policy »

Alan, that's what politics has become in this country. And that's why I say we pay them too much. The old adage we pay peanuts, we get monkeys. We taxpayers pay a small fortune, but it seems we still end up with monkeys.

Howes stood up before the National Press Club, telling us all about the pendulum that you just spoke about, but here we go, the right swinging it back again. When are our politicians going to understand, we elect them to manage the country on our behalf, because we all can't fit into parliament house. They are working on behalf of us taxpayers, not their own personal interests. Half their pay packets, and instead of getting greed, we may get real politicians.

Removing checks and balances from financial advisors is not in the publics interest Sinodinos, the public need protection, not laws that allow unscrupulous financial advises to rip us off. Thy are out there and rubbing their hands together right now.

The Labor party policy might have been heavy handed, but removing it all together is not the answer, just like Workchoices, there were aspects that could have remained in any new IR laws, but Labor abolished the lot, putting power back into the hands of the unions. And look where we are today, calls for a royal commission into graft, corruption and bribes in the union movement.

Every MP, wake up, its about us, not you!

Alan,your analogy about drug companies[big pharma] and their relationship with some doctors,despite reforms,is closer to the truth than you seem to realize.
Perhaps you could revisit the issue in a later article.

Suspicious alright,small investors BEWARE .... in my opinion it will only be a matter of time till we see another storm financial situation arise if the Liberals have their way on this issue.
The voting public lurches from Labor kowtowing to union demands and Liberals doing likewise for big business,ugh!

spot on Alan
Ken Phillips

As a tax accountant I think Sinodinos has lost the plot with this one. I argue with people that the FP industry is currently the most highly regulated, under regulated industry in Australia and is still full of rorts and bad advice.. The big boys are just looking after the big boys.

What FOFA essentially did was advantage the advisory arms of the big banks and make it administratively expensive for independently owned advisors to compete. .Their advisers are there to gather large amounts onto bank funds.instead of charging trail commissions they simply charge admin fees and relate advisor remuneration to assets under advice.Contrary to popular opinion there are independently owned advisors who provide effective services with clarity of charges.Storm FInancial and Westpoint are not representitive of the industry.It is worth npoting that at bleast two major banking organisations were sufficiently entwined with Storm Financial to be well aware that at very least it was stretching the model of sound financial advice way beyond acceptable risk .Lending sums to people of modest means in order that they could double gear through substantial margin loans was a model that was allways going to put clients under severe financial stress in a market correction.The army of investors who bought into poorly performed Eucalypt plantations were substantially pushed in that direction by their accountants,supposedly well qualified chartered accountants and CPA's who were given single product licences by ASIC.These dodgy products were sold on a combination of up front and volume bonus commissions totalling 9 or 10 percent.on the advice of accountants that there was a tax benefit ,actually a deferral rathr than an overall saving.It has long been the case that if a commission of that scale is required to sell an investment,the investment concerned is deeply flawed.

Alan as I see it there needs to be some clarity on a couple of issues:
+ first, Storm and Westpoint is not (I repeat not) representative of the financial planning industry
+ your generalisation that all financial planners all give bad advice is wrong
+ there is a greater need for people to see and get good advice, not to be told that they would only get poor advice anyway or be ripped off as this is not the case by the great majority - I would expect that there are equally similar percentage of bad accountant, lawyers and other professionals
+ Many (if not most) financial planners have moved to a fee for service model but the age old issue is how this is paid for
+ The people that need good advice are the ones that have the greatest trouble paying for it, so there needs to be some flexibility to accommodate
+ As a profession, while dealing with similar issues and concepts as accountant and lawyers, financial planning is very different - this is not a transactional arrangement but something requiring a relationship that requires advice that take time for it to bear fruit and may need change along the way
+ there is certainly a need for more transparency and clarity in the communication of what people pay for and what they receive and the fee disclosure statement correctly deals with this
The proposed changes to the rules:
+ best interest duty - there has always been a fiduciary duty for planner to act in the best interest but the "ham-fisted" attempt legislate for this has meant that, in stead of simplifying things it has made it more difficult for limited (or scaled) advice. Scaled advise that covers a specific issue rather than needing to do a comprehensive advice model makes sense and the proposed change is needed and is good.
+ Opt-in and Fee disclosure statements (FDS) - the biggest issue with people any getting advice in the first place is apathy. As stated before the valuable advice that financial planners give covers multiple time periods and as long as an annual FDS is issued (ensuring transparency and clarity) this should be sufficient for a client to decide if they are happy for this to continue or not. The apathy driven delays in getting back opt-in confirmations is a wasteful and costly exercise. At the end of the day why do we have to have a "nanny" mentality, as people should be charged with the responsibility of make their own decisions.
+ Commission on risk insurance - can anyone explain to me the rationale behind it being okay to accept commission for insurance outside super but not inside super? if there is a need for it why should it make any difference how it is structured? Anyway if real and valuable advice is given for the need for risk insurance how should it be realistically paid for?
+ commission Vs volume based fees - while I am not for accepting commission for sale of financial products where only general advice (rather than personal advice) is given, I challenge any one to explain the difference between a commission based on the volume of an investment and a fee based on the same criteria ?
+ volume based bonuses have proved to be wrong and I have seen nothing that would change this now.
You also make broad statements about the bulk of planner working for banks/financial institutions. The real issue her is the information the client receives about this relationship as this can not be easy to fathom. I don't have a problem with this relationship per say provided the client understands this relationship and can make a rational choice.
In one case you say they all work for banks but then say that they all can sell their business and retire rich. How does that work?
Alan the original FOFA changes while having the genesis in the likes of Storm and Westpoint was more influenced union controlled industry super fund industry. I would like to see you do an article on this industry and on the information to the members about the appointment of trustees and their investment decisions.