Episode 1: Policy and reform in financial planning [FPA Podcast]

16 July 2021

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

In this episode, Dante De Gori CFP® and Ben Marshan CFP® discuss FPA’s policy and reform agenda including our fight against the rise in the ASIC industry funding levy and the annual renewal of ongoing fee arrangements from 1 July.

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Episode Transcript:

Dante De Gori:

Welcome to the inaugural Money and Life podcast. I’m Dante De Gori, chief executive of the Financial Planning Association of Australia. We’re super excited to bring you this new podcast series. Yes, another podcast, and provide a forum for financial planning professionals to delve deeper into the important issues facing our profession and engage with the experts on the topics that matter.

Dante De Gori:

It will be different. It will be exciting. We hope to provide a platform that will engage discussion and help inform, educate and illuminate the pathway forward for our profession as we navigate this period of transformation. To start off the podcast, our first episode, I’m joined by our head of policy innovation and strategy, Mr. Ben Marshan. Welcome Ben.

Ben Marshan:

Thanks Dante. It’s good to see you. It’s nice to join you on our inaugural podcast.

Dante De Gori:

Well, yes. You’re a bit of a podcast connoisseur. You listen to many podcasts, you know what works, so hopefully we’ll get the ingredients right for this one. And we hope that it’ll be informative and engaging for our members and no doubt let them, in terms of the background, what’s happening behind the scenes at the FPA. And so I suppose there’s a lot of things going on at the moment.

I was going to ask you what, you’re constantly on FPA Community which is the channel for FPA members to engage and voice topics that they want to discuss. What’s the buzz at the moment.

Ben Marshan:

There’s a couple of topics that are keeping everybody excited on community at the moment. And I have to say, it’s great to have a forum and a discussion in some way that we can engage with members the way we have been in community. We’ve spent years, and I think this podcast is another way that we’re looking to do that, we’ve spent years just sending out FPA Today’s and FPA Express’s and hoping that members will get back to us and engage with us and communicate with us.

Ben Marshan:

But we’ve now got this great forum that we’re getting some good discussions. The hot topics at the moment are AFCA. There’s a review going on to AFCA and there’s a lot of members that are helping us shape our submission in terms of that review to AFCA, based on their experiences. The other big topic at the moment is the ASIC industry levy, which we still haven’t seen the invoices for, but we’ve got plenty of information to tell us that the fees have gone up, have doubled just in the last 12 months, if not a bit more.

Ben Marshan:

So we’ve been having some great engagement with members about the interactions they’re having with their local members of parliament, the discussions they’re having, the fact that their local members of parliament are actually listening to them. So there’s a couple of good topics there. And then I think the other ones relate to the Royal Commission which you mentioned, which is this whole change to buy in your opt-in renewals, changing to annual. And the new requirements around fee disclosure statements. So that’s another big, interesting topic and conversation going on.

Dante De Gori:

Yeah. And unlike some of the other things happening, this stuff has been legislated as you said and they do start and I suppose if there’s something, if you’re going to take something out of today’s podcast that you perhaps haven’t been aware of, this piece of legislation is going to be in play. It’s not, if it is. And that kicks off from one July, is there anything that you wanted to share in terms of maybe some top things, top one or two things that the members should be aware of as part of this new legislation?

Ben Marshan:

Yeah. So I think there’s a couple of things. Firstly, there’s a lot of confusion around it. So the main thing to take away is that if you’re doing… You’ve now got two choices going forwards. You can do an ongoing fee agreement with your client, which is basically the same as what we’ve got at the moment, that your service and the fees are an ongoing arrangement. The client opts in to those now on an annual basis, rather than a bi-annual basis.

Ben Marshan:

Or you can do a version of a fixed term or fixed engagement agreement with your clients. So, the most common one there is that they’ll do an annual fee agreement where the client will pay fees for a 12 month period and then that agreement ceases. If the client wants to keep going with an ongoing relationship with you, you would enter into a whole new service and fee agreement with them after 12 months.

Ben Marshan:

So there’s no actual changes if you’re doing the latter. So if you’ve got a fixed term, fixed service agreement with your client, that stays the same as what it is at the moment. If you’re doing ongoing fee arrangements though, that’s where the big changes are coming in. So as I said, we’re going from having to do renewal notices every two years to having to do them every year. And there’s some of our members who were doing them every three years as part of the professional ongoing fee code.

Ben Marshan:

That’s something else that will be removed out of this. The other big change in this though, is that at the moment fee disclosure statements have only been, what are the fees the client has paid over the last 12 months? Part of the new framework will be required to provide clients with an estimate of the fees that they’ll pay over the next 12 months as part of the renewal notice.

Ben Marshan:

So those are the two big ticket items in relation to ongoing fees going forwards. But there’s a lot of confusion and what I am in the process of doing is creating a, how to comply, piece of guidance for members, which we’ll hopefully have out in the next couple of weeks or not too long after that, on how  members have to adjust their current fee arrangements to comply with the new laws.

Dante De Gori:

Yeah. Excellent. Are… confusing?

Ben Marshan:

Yeah. Are you having conversations with licensees and members about that one?

Dante De Gori:

Look, it’s coming up. I think the main discussions and thing is no one really wants it to happen. And I think it’s because there’s also been this fact that the FDS is not going away when you go to an annual arrangement. We argued strongly about the fact that we believe that the opportunity to avoid some duplication and end or reduce some unnecessary administration would have been beneficial, but being a Royal Commission recommendation and I think the government just wasn’t prepared to go there, which is real disappointment. But I think there’s opportunity for people to look at this and see how they should structure their arrangements with their clients going forward that matches their needs and their client’s needs.

Ben Marshan:

I mean we’re still having those conversations with ASIC around the problems with the disclosure statements and the fact that what the client pays is not necessarily the amount that you receive. The timing of when the client pays is not the same as when you receive it and the difficulties in recording that as required on the disclosure statement obligations delay. Then there’s this whole issue is, if you’re charging an asset based fee, how do you estimate the fees for the next financial year? Or the next 12 months I should say and how’s that going to be dealt with?

Dante De Gori:

Yeah. Talking about asset based fees. And what the listeners, some members might not be aware of, was that during this whole process of passing the bill. In particular the legislation that related to the declaration of non-independence, which is part of the Royal Commission, there was a proposal that was lobbied for to effectively ensure, or not to effectively, change the definition of independent in the corporations act. And by that change, that included that asset based fees would mean you’re an ineligible to call yourself independent.

It didn’t proceed. But that was a very interesting 24 hours when that was put on the table.

Ben Marshan:

So, one of the things I wanted to talk about is our relationship with politicians and regulators and things. And that was a really interesting day, watching your WhatsApp going, binging every couple of minutes from messages. Without breaking confidence with our contacts and the people we were talking to, but can you just let members know a little bit about what that day was like?

Dante De Gori:

Considering the amendment, so to put it into context, this amendment would have meant that rather than having 130 advisors meet independent definition, it would probably drop it by half and make it even more difficult to become independent which is already a problem in itself. So considering the impact, which would have been negligible, there was a lot of fury and running around and… What’s the word I’m looking for here.

Dante De Gori:

Chaos, around parliament that day and it was 24 hours of non-stop messaging and discussion about will it or won’t it and trying to get certain parties to whether they would support or not support. It was just crazy. And just for something, in my opinion, something of really little impact, significant in terms of it’s the principle it sets.

Ben Marshan:

Within the context of that whole bill. In the context of that whole bill, it was just a tiny little thing. But yeah, it was interesting. I think for me, the watching politicians, asking us to engage with cross-benchers and oppositions and have conversations with them about what this means and how it would work and what the impact was to the overall bill was… It was chaos as you said.

Dante De Gori:

It was. And it gives you a little insight as to which parties don’t talk to which parties and the reliance of third parties to almost mediate that approach. So it was quite interesting, but yeah, that happens from time to time. But yeah, it does show… It does present a picture of, I suppose the political landscape in terms of who are in a more engaged and more in a, I suppose, so-called relationship, of some form of relationship versus those that aren’t.

Dante De Gori:

So it makes it quite interesting for the government’s bigger policy agenda. So let’s move on to other than talking about government. You talked about the asset levy, I think that’s quite big and the FPA has been quite vocal in our disappointment and opposition to the increase. What have our member’s been saying about it from your perspective, what are you hearing from members and licensees about the impact of this and do we have support across the profession for what’s happening in this space?

Ben Marshan:

Yeah, so I think the problem is, is that we’ve had issues with the ASIC funding model since it was first proposed back in around 2015. We had concern that, particularly for smaller licensees, there was an unfair burden on them covering the cost of regulating, monitoring, supervising that asset debt against large institutions. And that’s not to say that a user pay model is wrong. We think it is right for, for users of a regulator to be paying for them.

Ben Marshan:

But the model that we came up with had problems with it and it’s taken a couple of years for our concerns to play out, although this is only the third year of levies and we’ve seen 160% increase in the levy over that period of time. So I think members are concerned that the quantum itself is not the issue, it’s roughly $2,500 per advisor, per planner this year. That in itself is not the problem but it’s this constant increase, the lack of transparency about how we get to that cost base and how that works.

Ben Marshan:

And then we’ve got the concern that the number of financial planners on the financial advisor registry is constantly decreasing at the moment. So more and more of that increased cost burden is coming to individual financial planners. And when does it stop? What’s going into it? I’ve got serious concerns that there are aspects of the fee that probably shouldn’t be apportioned to financial advice are being apportioned to financial advice. And is that fair?

Dante De Gori:

Well, let’s talk about that Ben. Let’s break it up for a minute because it’s very easy to look at it just purely from the heart, the ultimate number, but I think the opportunity to detail a little bit about how the asset levy works. What’s made up of the asset levy and what elements contribute to ASIC’s decision to increase? So what things are factored into that? How does that work? Over what period of time? And what things are not? How does it work in terms of cost recovery and fines and other things that ASIC may actually be in receipt of? So just a bit about how the levy actually works mechanically.

Ben Marshan:

Being complicated to be honest, but ultimately the government says that ASIC can spend 250 million, $270 million a year, that’s its budget for the year. So ASIC will then take that budget and it will budget it out and plan for projects and do monitoring and supervision of different sectors of the financial services industry more broadly.

Ben Marshan:

So in terms of financial advice, they will do investigations, they do thematic reviews, so things like the life insurance review which is going on at the moment, this project around affordable advice that they’re doing, they have meetings with industry, they will go to different licensees and they will actively review bits of advice or bits of their compliance framework or risk frameworks. So all of that is the normal activity of ASIC. The bit that’s kind of got a way out of control for this year is that one of the other aspects that also gets thrown into the levies is court costs.

Ben Marshan:

So, if ASIC starts to take licenses to court, then that fee comes back to the pool of whichever industry is being taken to court. So for example, we’ve had court cases, we just had… Dover was recently in court and there was a finding against them. There was a number of other licensees that have had cases go on and ASIC will assign the costs of those cases based on which area of financial services they relate to.

Ben Marshan:

So what we’ve unfortunately seen is that the cost of monitoring and supervising financial advice has gone up anyway, because we’ve had a lot of remediation programs, we’ve had a lot of active monitoring and supervising that ASIC has been doing in licensees, but then we’ve had a significant number of court cases that have appeared over the last financial year.

Ben Marshan:

And those costs are being apportioned to us this year. So 40 to 50% of the levy for this year is not ASIC monitoring and supervision action, it is these court costs that have been assigned to the financial advice market. And our issue with that I guess, is that some of them aren’t actually financial advice licensees.

Dante De Gori:

Well, let’s look at the BT case as an example. So there’s two questions here. Two issues for me. One is whether this matter should be funded from the advisor bucket versus the superannuation bucket. That’s the first question. But even if they say the advisor bucket, BT Westpac don’t actually have any advisors anymore. So therefore the cost, the levy that’s been charged to fund or to recoup the cost of this activity is completely being burdened upon the rest of the advisor market and BT and Westpac are not paying a cent for it.

Dante De Gori:

So I just think it’s… So the fairness and equity of the way the model works is a real problem. So there’s a first question of which bucket it should go in. And there’s a massive question mark from our perspective as you said, but the second one is that in that particular scenario, surely ASIC must look at that and say, “Well, wait a minute. BT are responsible for this action. Yet we’re not going to levy the cost that was associated with it on them at all.” I just think that’s completely outrageous.

Ben Marshan:

We do. We think that’s outrageous. And I should say, the unfortunate thing in all of this is that… Well, it’s not unfortunate, but the reality is ASIC has won that case. BT has been ordered to pay costs. That will take time. But those costs will come back and it be a credit against the financial advice bucket at some point in the future. But there’s court cases and arguments that are going to go on.

Dante De Gori:

There’s a little bit of certainty about this isn’t there. I think we actually have a meeting with ASIC with their finance team.

Ben Marshan:

We do.

Dante De Gori:

To really get to the bottom of this, but one of the uncertainties was whether or not those costs and fines did go back into the pool as you said, as a credit, or do they go back and consolidate revenue. And my understanding now is costs yes, fines no?

Ben Marshan:

That’s right. So fines and penalties go into consolidated revenue and that goes for the government to spend. Any court ordered costs, those come back into the pool. But unfortunately, those fines and things that organisations have been found to do the wrong things, they get fined, they get penalised, that doesn’t come back into helping fund this portion of the bucket, despite the fact that we’re paid to support ASIC running the case.

Just before we move on, you did ask about the working with the rest of industry. And so this is a good example of us working with the accounting bodies. So CPA, CANS, IPA, Self-Managed Super Fund Association and jointly working together to advocate for the ASIC industry levy model to be reviewed by treasury and all working together putting out joint press releases. So I just wanted to make the point that we… There’s a suggestion that we all don’t work together. We don’t all pull in the same direction. We’re having different conversations with stakeholders.

Ben Marshan:

The reality is we generally work very closely with other associations and we have a lot of conversations with them. And we advocate in a more or less single voice. There might be multiple voices saying the same thing, but we’re all saying the same thing. So, I’ve seen AFA today come out and ask for the same things we’ve been asking for. I’ve seen FSC come out and ask for the same things we’ve been asking for. We’ve been working with these other accounting bodies specifically around this industry funding model. But that’s just one example of multiple issues that we work together on.

Dante De Gori:

Yeah, that’s right. There’s a lot of ongoing collaboration across the body which is great. I wanted to turn the attention to something a bit more topical and that’s been in the press lately and that’s Melissa Caddick. And the reason why I want to raise it is because we’ve had obviously a lot of interest from members about how this matter has been reported in the press and what journalists, how journalists have described her and in the press.

Dante De Gori:

And we’ve had a lot of members comment on that and provide copies of particular articles et cetera. Just to let the members know, what have we been doing and how will we be attacking this and what members can do if they find any articles in their local press coverage that may be misrepresenting her.

Ben Marshan:

Yeah. So, we were on top of this in, I think it was November or October, when all of this kicked off and they were referring to Melissa Caddick as a financial planner a lot at that time. We proactively worked with our media relations team on providing a fact sheet for journalists about what a financial planner is and what a financial planner isn’t. And what you’ll find is that there are occasional mentions now that she was a former financial planner or a fraudulent financial planner or something, but the reality is most articles are referring to her as a business person or a con person.

Dante De Gori:

She wasn’t really a business person was she?

Ben Marshan:

Well, no she wasn’t. You’re not a business person if you’re doing things fraudulently. So I think that the point is we’ve actually… There are the odd articles that are still coming through but given the quantum of coverage, virtually none of them have mentioned that she’s a financial planner. And that’s because of the work that we and our media team have done on educating and informing journalists.

Ben Marshan:

In fact, if members are seeing articles come through that mention financial planning incorrectly, somebody who’s not a financial planner being a financial planner or a financial advisor, let us know because we’ve got this great fact sheet and we’ve got this great reach out campaign that we’re doing with journalists to try and educate them.

Ben Marshan:

And that’s actually led to a lot of beneficial press coverage and a lot of beneficial articles that are talking about how to find a qualified, professional, ethical, financial planner and being able to point them to FPA members. So, there’s a positive that’s come out of this as well.

Dante De Gori:

Yeah, that’s right. And for all of you listening if you weren’t aware, again we have a statement that you can use and please let us know. Our PR agency has been on top of this and been proactively talking to the press since November when this first matter came to air when she disappeared. So, we haven’t just started doing this with recent events, this has been something that we’ve been aware of and following and correcting journos since November.

We’ve got road shows coming up and it would be great to see you all in person. We’re kicking off with regional Australia to start with but we’ll be making our way across the country over the coming months. So hope to see you all soon.

Ben Marshan:

And so there’s some exciting things coming.

Dante De Gori:

A lot of things that I think will be of great use and benefit and support for our members and probably the broader financial planning community. So thank you Ben for your time today and no doubt-

Ben Marshan:

My pleasure.

Dante De Gori:

There are plenty of topics that we will sink our teeth in over the coming podcast episodes. And if there are any suggestions or topics or ideas from the audience, please let us know.

But until then, I thank you for your company and I hope you enjoyed the first episode of Money and Life podcast for FPA professionals. Thank you very much. Bye for now.

Ben Marshan:

Thanks Dante. Bye everyone.

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