Opt-in to reduce costs for consumers, claims ISN

A two-year opt-in proposal will reduce the cost of financial advice, with asset-based fees resulting in consumers paying up to 17 times more, according to the Industry Super Network (ISN).

ISN chief executive David Whiteley (pictured) said a research report conducted by Rice Warner Actuaries and commissioned by the ISN found transition-to-retirement clients were up to 10 times better off paying set fees to financial planners as opposed to ongoing asset based fees.

The report, entitled ‘Value of IFFP Advice’, looked at five common advice scenarios such as retirement and pre-retirement planning, insurance and co-contribution, comparing the results of different fee-charging methods.

The biggest disparity could be seen in the transition-to-retirement graph showing set fees would amount to a little over $4,500 over six years, whereas costs of asset-based-fee-generated advice were assessed as $40,706 over the same period (the fee was 0.27 per cent on the accumulation account balance and 0.5 per cent on the retirement income product value).

Whiteley said the financial planning industry favoured asset-based fees, which were “typically the most expensive way to pay for financial advice”.

 “The report shows that, as proposed in the Government’s [FOFA] reforms, one-off and transparent charging for financial advice will reduce costs to consumers,” he said.

“The opt-in measure will ensure that consumers are not paying for advice that they do not receive and this will make advice a lot more affordable and accessible for ordinary Australians,” Whiteley added.

The Association of Financial Advisers chief executive, Richard Klipin, fully rejected the findings of Rice Warner’s report, saying financial advisers knew the costs of running their businesses and were already factoring price increases in positioning their business for the post-FOFA environment.

“Financial advisers work with clients with all segments, they run a range of business models and a range of pricing models. It’s always been the AFA’s view that it’s up to the adviser and the client to determine what works best for them,” Klipin said.

“We are also keen for the industry fund movement to start to disclose and fully unbundle their fee proposition so that their client understands what they’re paying and what they’re getting and can turn off the payment for services they don’t want or they don’t get,” he added.