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Financial Planning
FOFA reforms
Moment of truth for financial planners
John Hewison
Founder and Director
3 Apr 2013
There has been a lot written and discussed about the arrival of the Future of Financial Advice (FoFA) reforms coming into force from 1 July 2013. Although there has been a lot of debate about the changes, the most important shift is the requirement for financial planners to fully and clearly explain to their clients how much they are paying for advice and what they are getting for it.
So this is the moment of truth. Some investors will discover they are paying commissions and fees to their financial planner for a limited service and often poor performance. They are going to discover the obscene level of costs they have been paying without full knowledge and for mediocre performance.
There is no question the historically multi-tiered, convoluted financial advice industry in Australia has been gouging money from unsuspecting investors with typical fee levels of 3% plus per annum. We have already had clients come to us in disbelief at the level of cost they were paying for a limited service with other providers.
As an independent, fee based advice firm, we have been arguing this issue for decades. There is no justification for exuberant fees which are laced full of kick-backs and adviser commissions. There is no justification for so-called service commissions paid to financial advisory firms for providing literally no service and there is no justification for the source of their revenue coming from administration platforms based simply on volume.
The time is finally here for investors to be clearly informed of what their hard earned money is getting them, whether they are receiving value for money and ultimately whether they will “opt-in” and continue with their planner or shop around for a better deal.
We have already seen a massive number of financial advisory firms sell out, merge or restructure. Why? Because many are unable to justify the value provided for the fees they charge and receive from their client base. This in itself is an unintended consequence of the legislation that will see over 90% of advisers “owned” by big institutions.
We have seen financial planners complaining bitterly about having to contact their “clients” and notify them of the commissions they have been paying with some admitting they don’t even have the contact details of people from whom they are receiving commissions – insurmountable proof of just how ludicrous this industry has become.
Financial advisers need to work hard at providing great client service at a reasonable price and to ensure their clients are fully informed at all times. Those who have not been doing this are about to be exposed – as I have said before, this is the moment of truth.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.