ASIC has submitted its plan to clean up financial planning to a parliamentary inquiry and has recommended:
In case you don’t understand, if you have a million dollars to invest and the fee is one per cent, then you pay $10,000 to the planner. The initial plan is not tax deductible but the ongoing advice is.
This final ASIC reform would send shivers through the financial planning industry’s spine, as this latter charging method was meant to be the new age and the better way for planners to charge their clients.
All of the other ways of charging were thought to encourage financial product selection based on what product gave the best commissions to the planner.
On the other hand, if you had, say, a set one per cent fee based on the funds managed for a client, it was thought by many in the industry, who want to clean up the image of advisers, that planners/advisers would have less bias towards products.
The ASIC goal is to turn planners into fiduciaries, who they say act in the clients’ best interests, but that assumes that planners currently don’t.
Obviously, the Storm incident shows that some planners are possibly irresponsible, scoundrels or fools, but a hell of a lot of planners are great people who care about their clients.
Many have come to an industry with entrenched pricing problems, but many have still remained honest brokers.
One thing I will say, as a planner who already runs a business the way that ASIC is proposing is that it’s a hard task and could threaten many planners’ businesses because many Aussies are tightwads and scabs. People who need advice will not easily write a cheque, even for the most transparently priced advice. That’s why the industry developed less transparent pricing methods, which governments have ignored for ages.
Charging a percentage fee could be acceptable provided the client knows exactly how many dollars they will be charged. The new world should be more transparent.
However, if the Rudd Government accepts ASIC’s advice, it could rip billions of dollars off planners and change their business model dramatically. So if they head down this road, the Government will have to make financial plans tax deductible and this could help Aussies cope with their tightwad ways. This drama has only just begun and will play out over the next few months. The final decision could have a big impact on the share prices of a number of big financial institutions, which have invested a hell of a lot of money into wealth management.
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