Advisers need more education on platform fees
There is a gap in awareness from financial advisers and their clients on the layers of platform fees and which parts of the value chain benefit from these fees, according to WealthO2.
Speaking to Money Management, WealthO2 managing director and cofounder, Shannon Bernasconi said there were a lot of hidden and indirect fees and the industry needed to work harder at being transparent.
“For example, on badge platforms it is not obvious at all that there’s an extra $2000 to $3000 per year in fees that is paid to the third party for the exact same experience, solution, and investments,” she said.
“Product disclosure statements from these providers is like a maze gone backwards. They hide specifically best they can anything that relates to the actual underlying fees that are going to be charged.
“It’s really hard for the advisers to understand what is ultimately going to be charged underneath the covers because it’s not actually put through the front of the document.”
Pointing to Standard 3 of the Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics regarding conflicts of interest, Bernasconi said that the lack of fee transparency meant that advisers could find themselves conflicted without knowing and thus breaching the code.
“The penny is starting to drop as more advisers are asking themselves ‘am I sure this is the right solution for me and my client?’ and the next question they need to be asking is ‘Who is making the margin? In that value chain who is getting the most of the money that this client is eventually paying for?’.”
Bernasconi said historically it had been the product providers and not the advisers who were being paid but that if the advice industry was going to grow and prosper it needed to shift to where the value was – advice.
“I have no objection to a managed fund getting paid well for what they do. It’s the indirect that I’m objecting to for the third party that I think is a practice that needs to stop for the benefit for everyone,” she said.
Bernasconi noted that the vagueness of FASEA’s Standard 3 on conflicts of interest would push more advisers to be more aware of their decisions.
“It makes every possibility a potential conflict so it opens up a lot more wounds that necessarily than if you defined it nice and neatly and then everyone would say ‘I’ve ticked that box’ and walk away.
“There’s no box to tick so it does bring more questioning as to what a conflict is and therefore it might bring to the surface more of a discussion in the industry.
“There’s a move away from the old world of big banks and distribution. Now there’s more independence and a focus on business success as much as advice success. That means you have to think about how to get that margin. It has changed the business orientation of advice as much of it has been focused on conflicts.”
Recommended for you
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
Morningstar has made two business development appointments to drive the growth strategy of its financial advice software, AdviserLogic.
