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Sep 2, 2011

Financial planners and the irony of 'free riders'

The Financial Planning Assocation is targeting what it calls "free riders" in the wealth management industry. Funny that ...

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In an astonishing act of corporate chutzpah, the industry campaigning aggressively against consumer protections on financial planning is launching a nearly $2 million campaign to lure people into spending tens or hundreds of thousands of dollars on financial advice.

The Financial Planning Association has been running a grassroots campaign to lobby independent MPs to block several the “Future of Financial Advice” reforms to financial planning regulation initiated by the government following scandals such as Storm, and the chronic underperformance of retail super funds compared to industry super funds courtesy of massive commissions. In particular, the FPA has campaigned hard against the proposal to require planners to obtain explicit “opt-in” agreement from customers to deduct fees for financial advice. It remains the last hold-out in a wealth management industry that is otherwise finally coming around to the view that huge commissions and financial advisers essentially acting as spruikers for wealth management products have to end.

This “opt-in” requirement would end the exploitation of Australians’ disengagement on superannuation, which sees up to 4 million Australians lose tens or hundreds of thousands of dollars in retirement income for financial advice they never get and never ask for. As Crikey recently showed, even many financial planners are critical of industry colleagues who rely on automatic deductions rather than maintaining active relationships with clients.

Nonetheless, the FPA campaign looks set to be successful. The independents, and particularly Rob Oakeshott, appeared to have been convinced by the FPA campaign that planners’ interests should be put ahead of consumer interests (the opposition is resolutely opposed to opt-in as its policy is essentially directed by the interests of financial planners). On Monday, the government went further in its efforts to get parliamentary support for opt-in, after moving to a two-year, rather than annual, opt-in requirement. In legislation unveiled by Assistant Treasurer Bill Shorten, opt-in would become mandatory only prospectively, and not apply to the millions of existing client relationships that see Australians paying commissions without being aware of it.

The scale of what is at stake here has received minimal attention in the media. The current arrangements, which the independents appear bent on perpetuating, cost millions of Australians thousands of dollars a year in lost income, which accumulates over a working life to eventually mean significantly smaller retirement incomes. The money is funnelled instead into the pockets of financial planners and the wealth management industry, which is now essentially controlled by the Big Four banks and AMP. The result is costly to individuals and to future taxpayers, as smaller retirement incomes mean greater reliance on taxpayer support in the future.

The FPA now wants to see more Australians pouring money into the pockets of its members. In a print, TV and online campaign targeted at “consumers aged 35 to 64 who have at least $150,000 of investable assets” to be launched on September 18, the FPA bizarrely compares financial planners to aircraft designers, scientists, judges and doctors. But in a further sign of deepening divisions within the industry, the FPA campaign is also intended to attack planners who aren’t part of the association, telling consumers to avoid anyone who isn’t a member.

The FPA says the campaign is intended to “end the free ride” enjoyed by non-members. “Free ride” is of course an apt description of a planners who rely on automatic deductions of commissions from the accounts of Australians who aren’t even aware they’re being billed for advice they never sought or asked for. “Consumers don’t know where to turn for advice they can rely on,” the accompanying press release quotes FPA chief Mark Rantall as saying, conveniently overlooking consumers who don’t want advice but pay for it anyway.

Hopefully, the FPA has tightened up its internal processes if it’s going to start boasting about itself to consumers. Emmanual Cassimatis of Storm Financial was still a member until November last year, nearly two years after ASIC started investigating Storm and 18 months after the company went into liquidation. “Always look for a member of the Financial Planning Association,” says the TV ad. Well, perhaps not always.

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9 comments

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9 thoughts on “Financial planners and the irony of ‘free riders’

  1. LWW305

    I am fed up with reading the same crap about financial advisers and the average punter powerless to do any thing about it.
    It is a made up industry made up by the smarties of the financial world. They are parasites and leaches feeding off the ignorent and less educated and inexperianced investors. We should be able to invest directly into products which at least garantee our capital. Iff they are as good as claimed this would not be a problem.
    Nobody should be able to prosper on failed financial dealings with other peoples money.
    I have no objection to someone making me a twenty percent return and taking five percent as commision
    but someone who loses twenty percent of my money and takes and extra five percent for the privalige should be fried in oil. Financilal planning should be taught in schools from primary upwards then there would be no need for these clowns.

  2. AR

    I objected to the 1.5% I paid as management costs on my Super but during the boom times let it pass. Now, their expertise having lost me >$35K in the last 6 months, I was charged almost $4K for the privilege. Even paying standard tax on a 6% Fixed Term deposit would be cheaper. Jes “waiting for the upturn’ to close the damn thing down.

  3. PAVLOV'S OTHER DOG

    Rather than lead reforms in it’s own industry the FPA, once again, lobbies to keep the gravy flowing for planners that sell products to people that don’t need them, then take commissions for the next 20 years without a lick of care for the client. The fact that most Australians with a managed fund wouldn’t remember who sold it to them (and consequently who they are continuing to pay fees) is disgusting. And the planners can’t be bothered with a meeting every 2 years to get a signature, and, god forbid, give some financial advice. And the FPA battles to keep this sorry state of affairs alive. Thank you for smoking, err sorry, I mean investing.

  4. abarker

    @Tomboy I also know of another ‘financial services’ (read – product) provider who provides an additional $500 to a planner every time they sign a new client up to a particular product for – wait for it – ‘Education expenses’.

    True story.

  5. Tomboy

    What about the “free ride” a group of so-called “elite” principals (about 20 or more) and their wives are getting later this month at a Coolum 6 star resort later this month, paid by a leading franchisor of FP businesses? And it’s supposed to be business planning and professional development (LOL)!

  6. drmick

    Paddy
    I told first moondog about my industry, (Aged Care Nurse) super. HESTA provides personal free financial planning as part of the deal of being with them. Free.

    Its ironic the the FPA has the same acronym as the family planning association. They both plan for you to have nothing after a good time.

  7. paddy

    As a certain well known Baroness was once heard to say during a famous interview.
    “Who are these people? Give me their names!”
    More to the point in this case. I think we should give their names to Firstdogonthemoon. What an utter bunch of ****s

  8. billie

    As well as trail commissions, the financial planning industry also offers default Life Assurance as “First Dog on the Moon” poignantly cartooned us on Monday. As Life Assurance pays up upon death, its of no use to contributors who have no dependants and should be something a contributor explicitly requests each year.

  9. abarker

    How Effing Ridiculous.

    ‘Free ride?’ As in those who are not paying their guild dues to the FPA? All industry associations are self serving parasites living off of member fees to self perpetuate themselves. The FPA are no different. I find it a little funny that a few years back I distinctly remember a story run in Crikey about the then FPA chairperson Joann Bloch expelling a member who spoke in front of a parliamentary enquiry into this very issue, because the member said they thought trail commissions were wrong and should be banned.

    Joann Bloch was then publicly made to apologise and re-instate the member.

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