A Workable Risk Solution
Like many at the coal face of the industry, the AIOFP Board are concerned at the lack of consideration for the practical implications of these proposed changes. We will be requesting that Minister Frydenberg allows the AIOFP, on behalf of the advisory industry to put forward a workable modified solution where all stakeholders are considered, not just the Institutions.
The AIOFP will argue that the Financial Services Council (FSC) and Financial Planning Association (FPA) Executive are too heavily involved with potentially conflicting institutional membership relationships and too far removed from operating an advice practice to offer a pragmatic workable solution.
Please consider the following AIOFP Board views and respond where necessary.
The Risk Industry solution proposed by the FPA, FSC and AFA to the Minister is a typical Institutional centric approach to a situation that fails to address a number of challenges for small business. Like product failure and the injustice imposed on advisers, this issue has been spun and twisted to emerge as an adviser driven problem and the Institutions are innocent manipulated bystanders. Advisers don’t build or manage products, in this case Risk advisers do not dictate the commission culture.
Institutions over many years have orchestrated the ‘churning of policies’ by deliberately structuring their new product offering below competitors to capture market share. If an adviser is working in the best interests of their clients, what are they meant to do? Ignore a better product? The winning Institution calls it ‘market innovation’, the loser calls it ‘churning’ and although the adviser has acted in the best interests of its client gets the blame for being unprofessional by the loser but exalted by the winner.
Despite the current rhetoric around being better for the consumer, if history is any judge, there will be little benefit for consumers. The Institutions will keep the savings, deal directly with the advisers clients, the advisers will leave the industry and Australia’s chronic risk deficiency will rapidly accelerate.
Despite the so-called consultation process with the advisory industry, why would an adviser ever agree to a three year responsibility period? How can a small business operate with uncertainty over their income for three years if they are subject to a number of events out of their control? For example, clients can cancel policies upon receiving an inheritance, lose their job therefore no longer afford it or takes out a new policy upon joining a new Super fund. How can an adviser operate a practice if they don’t know whether they have made a profit over a three year rolling time period? How can they fund their fixed costs today when they are not certain whether their business is solvent?
This proposal reeks of Institutional manipulation by Associations that are heavily influenced by Institutional presence in their membership and Executive. This is not a solution that has been thought through by practicing small business owners who know what’s needed to stay in business. It is a solution concocted to suit the Institution’s coffers with no regard for small business survival or consumer outcomes.
It is time for all advisers to position themselves as a consumer with the Government and the general market place. We can no longer rely upon Associations to stand up for the advisory industry if they are held captive by the Institutions.