Costly Privilege
If this burningpants correspondent is not mistaken, the general rule of thumb for investors is that investments should be made on a five to seven year investment time horizon.
The ebb and flow of investment markets are such that in order to realistically track the performance of an investment portfolio it must be done over the medium term.
Why oh why then, is the Federal Government proposing that financial advisers have their clients opt into receiving advice services every two years?
It is no doubt a better outcome than the original one year timeframe proposed, but the unintended consequences are nonetheless concerning.
There is a clear risk that advisers will be forced to provide investment advice based on a short term horizon, placing more emphasis on capital preservation and lowering portfolio risk.
In this case, the result will be underperforming portfolios that fail to achieve their growth potential.
In addition, many pundits argue that investors can already opt out of their financial advice relationship at any time. Yes, trail commissions were an issue in the past, but in a fee-for-service environment, the reform is somewhat redundant.
A recent CoreData poll of financial advisers found only one in five (22.3%) agree with the two year opt in requirement.
Of those who disagree, most do not see any benefit to the client or the adviser with many suggesting that the legislation will simply add an administrative burden for no added benefit for clients.
The cost of this burden is some $84,500 per adviser annually, according to the research. This is based on the expectation of the average adviser that the two-year opt-in will add approximately 6.5 hours of administration to their weekly workload.
If this cost is borne by consumers, that’s a high price to pay for the privilege of ending a relationship, a privilege that existed for free in the first place.
7 Comments on “Costly Privilege”
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ordinary consumer says:
I’d be interested to know how that 6.5 hours is charged out to come up with the unGodly sum of $84.5k per advisor per year. I can only think you guys are paying yourselves at QC rates or at least would like to. Get real. Change has already come
Mark says:
Your logic is poor. Firstly a quality Adviser meets with clients annually or more frequently to confirm the time-frame and to confirm the appropriate asset sector and specific investments. It is about helping the client to achieve goals.
Secondly, the survey you refer to was commissioned by a group with a vested interest in defeating opt-in.
If Advisers do not have contact with their clients each year they do not deserve annual fees. They can charge one-off transactional fees if that is what the service warrants.
Where is the ACCC? says:
Will the Australian Competition and Consumer Commission research the anti-competitive nature of this legislation which forcibly accelerates client attrition weakening independent advisory business and favours industry and institutions? Presumably a future of advice which is much like petrol retailing, supermarkets and banking is not in the best interest of Australian consumers?
NotSoSimple says:
I think you are confusing the timeframe of the investment return with the timeframe of the value add provided by the adviser.
The adviser (hopefully) adds value each year over the 5-7 timeframe of the investment, regardless of the investment performance. A good adviser should be able to demonstrate this.
If this is not the case (ie. the adviser is dumping the client in some managed funds and leaving them there), then I think the client is quite right to stop paying for “advice” after two years.
GoodGrief says:
Write a Comment for this Aritcle ?
What kind of a question is that to ask a nice,clean-living boy ?
David says:
Never get logic, evidence, common sense, compromise, agreement or rational though get in-between a FUM Turf War.
Michael says:
I don’t think the government would understand the arguments you put forward; they are too simple, contain too much commonsense and do not fit with their predetermined agenda.