Opt-in Uncertainty
The proposed requirement for financial planning clients to ‘opt-in’ annually to continue receiving services from their adviser has proved one of the most controversial proposals touted under the Future of Financial Advice (FoFA) reforms.
According to adviser research conducted by CoreData in late 2010, of all the reforms, planners are most opposed to the opt-in, with three in five (59.2%) rating their support for the reform 0-3 out of 10.
But it’s not just advisers that are unsure about the need to legislate.
Recent CoreData consumer research reveals more than one third of advice clients (36.6%) oppose the requirement for them to opt in to financial planning, and a further 31.1% think it is unnecessary but don’t really mind.
The research, based on a random sample of 219 people who are using financial advisers, found just over half (55.7%) think it should not be mandatory, the main reasons being the extra paperwork, legal implications and freedom of choice.
The Government’s intention is to increase transparency around the payment for advice, ensure advice is in the client’s best interest and remove or minimise conflicts of interest.
Despite client uncertainty over the need for reform, more than half of respondents (50.2%) do not think professional advisers deserve to get trailing fees or commissions on investments under their advice – suggesting underlying support for a change that makes the payment process more transparent.
Furthermore, three out of five people do not have a good understanding of how commissions are divided between fund managers, platforms, custodians and planners (61.1%).
If the reform was to go ahead, annually is the most preferred timeframe for opting in, with two in five saying they would want to do so once a year (42.9%).
A further third (32.9%) would want to opt in every two years or less frequently.
Perhaps even more concerning for advisers than the reform itself, is the fact that almost two in three advice users (66.2%) think that financial advisers should not receive any additional payment if they as clients were to opt out of advice on some or all of their assets.
More than one quarter (26.4%) say it is fair for people to continue using the plan an adviser has developed if they opt out of an ongoing fee structure, while 29.2% think it depends on any agreement made and one fifth (21.0%) say it depends on the relationship with the adviser.
Many of these issues will need to be worked through if the opt-in reform is to be successfully implemented.
One Comment on “Opt-in Uncertainty”
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Rob says:
The proposed opt-in reform will undoubtedly lead to unintended consequences. Certainly advisers will have to increase upfront fees to make sure they are adequately compensated for the first year of work, in case the client does not opt-in after year 1. Many advisers currently accept lower first year fees to establish a mutually-beneficial longer-term relationship. Alternatively, advisers could put in place ‘exit’ fees if a client does not choose to opt-in after year 1 – a type of deferred establishment fee that our banks love to use.