Adviser calls for age and fee limits to annual opt-ins

In a letter to Minister for Financial Services Stephen Jones, Paul Melling Retirement Planning (PMRP) founder Paul Melling argued for age and fee exemptions on the current requirement for annual “opt-in” fee consents that advisers who have ongoing fee arrangements with their clients are obliged to seek.

Mr Melling’s suggestions were: “To allow financial advice clients over a certain age the ability to ‘opt-out’ of the annual opt-in fee consent requirements. We suggest age 70+ (or even from age pension age) but certainly no client over 80 years of age should be forced to comply with this burdensome administrative paperwork regime.

“To allow financial advice clients whose (fixed) annual advice fee is less than a dollar threshold the ability to ‘opt-out’ of the annual opt-in fee consent obligations. We suggest $2,400pa or $200 per month as a threshold.”

As an adviser that specialises in providing advice to retirees, Mr Melling explained that complying with the paperwork requirements can be difficult for older clients.

“Most our clients have been with us for over 20 years — many for over 30 years. They should not have to sign forms every year simply to retain their financial adviser and avoid termination of this long-term relationship,” he said.

“Keeping on top of unnecessary paperwork (or keeping on top of an email inbox) is not easy for many clients and gets more difficult with age. They emphasise strongly that they do wish to continue their relationship with us to provide that support in their advancing years but can’t always keep on top of the paperwork.

“These clients should not be forced to comply with this unnecessary administrative paperwork.”

In terms of introducing a fee threshold for the opt-in, Mr Melling argued that due to the increase in “advice orphans” following the Hayne royal commission and the resulting ban on grandfathered commissions, too many clients are “too small to profitably service”.

“By removing the administrative burden of requiring annual ongoing fee consents from ‘smaller balance’ clients (but retaining complete disclosure of these fees in super fund annual statements), financial advisers can be supported and incentivised to look after those ‘smaller balance’ clients,” he said.

“For administrative efficiency, this exemption should only apply to adviser fees which are fixed (and therefore readily calculable).”

Mr Melling added that evidence from industry indicates that very few financial advisers would take on a new client for an ongoing annual fee of less than $2,500 a year, which led to the choice of a $2,400pa threshold.

“If improving access to ongoing financial advice for ‘lower balance’ clients is to be achieved, allowed an ‘opt-out’ exemption to the administrative requirements for these clients makes sense,” he said.

Commenting on the proposal, IFM Securities director Lionel Rodrigues said that PMRP has put forward a solution that would lower the administrative burden without harming consumers.

“For my part, as an active advice practitioner, the case made by PMRP is logical, based on sound practicalities in operating a personal advice business, offers a solution for the minister to consider, contains arguments that are not detrimental to consumers, and demonstrates a professional approach to providing quality and affordable financial advice,” Mr Rodrigues said.

“The PMRP proposal attempts to properly encourage the minister to implement policy changes to the benefit of consumers by addressing the administrative burdens unnecessarily imposed on what has now become a profession. The optimum outcome would be for the minister to repeal these onerous compliance obligations,” he added.

While the Quality of Advice Review (QAR) did not recommend scrapping the requirement for annual opt-ins, the PMRP proposal is in line with reviewer Michelle Levy’s call to simplify the process.

Under recommendation eight of the final report of the QAR, Ms Levy said compliance with these “important consumer protections” should not be an “onerous obligation” for financial advisers.

“Providers should still be required to obtain their client’s consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single ‘consent form’,” the QAR reads.

The single consent form, which “should be prescribed”, would also authorise the deduction of advice fees from the client’s financial product and “should be able to be relied on by the product issuer”.

“Multiple forms would only be required where fees are to be deducted from financial products issued by more than one product issuer,” Ms Levy noted.

Additionally, under the same recommendation, Ms Levy has called for “a single prescribed form” applicable to all product issuers, including superannuation trustees.

In a video message to the Stockbrokers Conference held in Sydney on Tuesday, Minister Jones stressed that all QAR-related decisions will prioritise consumers.

He explained that, just like he did with the experience pathway, he is “determined” to work with the industry and regulators to “get it right” and “make a meaningful difference”.

“I want to make sure that the profession is properly regulated and governed so that people and processes are best placed to get consumers the advice that they need,” Mr Jones said.

“We also want to have a conversation about how to get more advice to more Australians in a safe way that puts at the centre consumers.”

Touching on the retirement income of Australians, the minister highlighted that access to financial advice can assist in “making that wealth go further”.

“But we need to do it in a way that is measurable, consumer-centric, and responsible,” he said.