Adviser survey reveals opt-in doubts

Over a third of advisers would be affected by the opt-in Future of Financial Reform, although about as many doubted whether the legislation would even be introduced, according to a Tepana Associates survey.

The survey of about 250 advisers conducted in the first week of September found there was considerable negativity towards the opt-in reform and Tepana Associates principal Kathleen Tepana stated that many felt that if implemented the reforms would detract from the continuity of advice.

The research revealed that the success of the opt-in reform would depend on the approach to grandfathering provisions and the willingness of the Government to review the tax deductibility of advice.

One of the main adviser concerns was that the proposed reforms do not address the need for consumer protection and that the intent of the legislation was likely to fail as clients left the client relationship due to poor investment performance during a market downturn.

In terms of revenue, the picture was more positive. While 53 per cent of advisers believe that the opt-in legislation would result in a decrease in revenue as product-based commissions diminished, most expected a moderate decrease (61 per cent) while 11 per cent stated it would result in a moderate, larger or very large increase in revenue.

The survey revealed that there were just as many advisers charging fee-for-service as those utilising ongoing trail commissions and life insurance commissions, showing that on average the legislation would affect over a third of adviser revenue as 37 per cent was sourced from commissions (comprising 19 per cent ongoing trail, 11 per cent from life insurance commissions and 6 per cent from upfront commissions).

On average, 45 per cent of adviser clients were invested in products that payed commission, although the survey noted that there were “large variances” from adviser to adviser — almost a third had up to 15 per cent of clients in a product that payed commission while a third had more than 75 per cent up to 100 per cent of their clients in a product that payed commission.

The survey also revealed a high level of doubt that the reforms would even be implemented. Over a third stated that they did not think the proposed reforms would be introduced in July 2012. However, it remained a high priority issue for 58 per cent of advisers in terms of their business.

Some 63 per cent did not believe that the opt-in reform would enhance professionalism, and 64 per cent did not believe that the opt-in requirement could easily be implemented through their existing annual review process.

Tepana said some advisers preferred an opt-out approach, which would allow clients to choose to leave the advice relationship at any time. The research also revealed that advisers would recommend that 43 per cent of their commission-based clients opt-in to commission payments for existing products, while 30 per cent would be recommended to alternative non-commission or platform based products.