The Commissions-to-Fees challenge

One of the challenges I have set myself in Mentor Circle is to help advisers solve the problem of moving away from insurance commissions to fees for advice.

There is no shortage of risk advisers who say they have tried, and conclude it can’t be done.  And yet the problem has been solved by independent financial planning practices across the country.

They provide insurance advice, as part of an advice package; and they do it for fees only.  They don’t accept commissions because they can’t.  It’s part of the independence rules.

Besides the ‘independents’, there are many other fee-only advisers who reside in commission-based, non-independent licensee groups who have made a similar journey.

But simply asking existing clients to suddenly start paying fees, after having been conditioned to the commission concept for years, won’t work. I’d say no too, if I was already paying rising premiums and couldn’t perceive any additional value in return the requested fee.

It doesn’t mean that insurance isn’t valuable. It most certainly is.  The problem is that clients value the acquisition of their insurance cover because that’s what they pay for.  Whereas they should also be valuing the advice they receive from their adviser.

Although clients might highly appreciate the advice, they don’t value it because they don’t pay for it.  The insurer does.

For decades, clients have been happy for advisers to accept commissions in lieu of having to pay for the advice from their own pockets.  But what that has done is positioned risk insurance as a commodity, and unintentionally created the illusion of free advice in the mind of the client.

I am acutely aware of the under insurance problem in Australia, but we have to find a way to work within the ever-moving legislative environment that is advice.

I would rather start developing solutions now before the next government or the one after decides to further tinker with the commission rules.

If this is a challenges that you would like to solve, join Mentor Circle at


Do you really think that financial products are the first priority for millions of people who have never learnt to manage their money?

Yesterday I conducted a Zoom Q&A session ahead of the February adviser exam.  By way of explaining the overall context of Ch 7 Corporations Act, I said that it relates to financial product advice only.  This particular legislation was introduced in 2001 to break the stranglehold that product providers had over financial product-related advice, and to replace the contractual obligation to product providers with a codified fiduciary obligations to clients. To this day, the Act still aims to ensure that advice about financial products is not influenced by the quantum of product provider payments, incentives, or by conflicted relationships.

But this legislation doesn’t apply to any other form of financial education, money coaching, government services consulting, or to a hand-holding financial concierge service.

And then the penny finally dropped!

Realisation that, from an advice provider’s viewpoint, the entire Ch 7 and Code of Ethics is about financial product advice and dealing in financial products… ONLY!

My group of advisers finally realised that the only reason that they have to sit an extortionately priced adviser exam, pay exorbitant ASIC fees and licence fees; observe a best interest duty, or take any notice of the Code of Ethics; or in fact be authorised at all, is because of their long-standing attachment to financial products. It is the very same attachment that drags advisers into Austrac and Privacy obligations. It’s because all licensees are deemed to be Austrac reporting entities, which in turn creates their Privacy obligations.

In the current environment, you’d have to wonder if this blind love affair with financial products is really worth it?

Structuring a business around them is a high cost, high risk enterprise with ever-diminishing returns.

Largely useless industry bodies and ineffective government authorities make millions from advisers while adding little or no value.  We have seen off the former government-created and bank-funded FASEA, but not before this blunt instrument showed thousands of advisers the door. The current government for all its verbiage and bluster, is likely to change very little except where it benefits their industry super fund agenda.

And yet like moths to a flame, advisers continue to flirt with financial product advice until finally they are burnt.

Risk insurance and superannuation may have been highly profitable a decade ago, but the prohibitions on superannuation commissions and reductions in risk commission over recent years have ravaged product-related payments as a viable source of adviser income.  Many risk advisers are only just managing to stay afloat on their rafts of renewal commission.

The problem today for many advisers is that they don’t know how to do anything else but advise on, or deal in products.  Many lack the education or expertise to provide non-product services related to money; and they fear a world where the client, not the product provider, becomes their paymaster.

So now that realisation has dawned that only those advisers who engage in a financial services business (as defined in RG 121.24) are required to be licensed or authorised by a licensee.  Everyone else is free to practice outside ASIC’s regime, under the same principles of common law and consumer law that apply to any other type of business.

So if it is possible to disconnect your adviser psyche from financial product, here is a non-exhaustive list of strategic topics that fall outside the ‘financial service‘ definition.

  • Financial education
  • Cash flow management
  • Household / business budgeting
  • Financial addiction management
  • Government services consulting (e.g. Aged care, Centrelink, Veteran Affairs)
  • Retirement planning (non-product)
  • Estate planning & important document facilitation

Many of your existing clients might appreciate your expertise in one or more of the in-demand areas above.  From your point of view, there would be much less government and legislative risk; and your costs of doing business would slashed to a fraction of what they are now?

And if you took the final step an kissed goodbye to financial products, you could also kiss goodbye to ASIC and your AFS licensee.

It would make such a difference to a huge number of Australians who value financial education, money management, government services guidance and practical money strategies as a precursor to financial product advice.

If you choose this path, you may need to focus on upgrading your education and acquiring the expertise to offer these services.  Of course, you won’t be able to call yourself a financial adviser or financial planner. They are restricted terms reserved for relevant providers. You would be a ‘consultant’ or ‘strategist’ or similar.

If you are no authorised for financial products, it would also be wise to establish a referral relationship with a relevant provider for those occasions where you brush up against a financial product issues (except for factual information).

If you would like help to establish your new practice with your old clients (and learn how to attract new clients), join Mentor Circle.


The provision of financial product advice is becoming a high risk, high cost, diminishing rewards business model, particularly for sole practitioners and small practices.

Although there are one or two exceptional value for money ‘boutique licensees’ in the AFSL market, licensee fees among the larger providers are becoming an increasingly prohibitive fixed cost to cover each year.

Added to that are the additional, rising costs of PI cover, ASIC fees, ongoing CPD, and software fees.

That’s just the costs.  What about the risks?

The need for many licensees to micro-manage adviser compliance has resulted in the advice process being slowed down to varying degrees by vetting all or some SoAs before presentation to clients.

Any process that slows down advice delivery also limits adviser revenue.

Then there’s the ever-present ASIC enforcement tightrope to walk. One slip here can rob an adviser of their lifetime of work by means of a huge fine or banning.

Add to that the ever-present risk of a litigious client or one with self-serving bias seeking to shift blame, having a free swing. The risk here is a very long and expensive slide into the AFCA complaint pit where the playing field is anything but level, for advisers.

Of course, the biggest risk of all is the Australian government, driven by political agenda, making it worse by doing more of the same, in the name of fixing it.

As a result of all of this, the price of advice has risen to unaffordable levels for most low net worth and disadvantaged Australians; those who need it the most.

So it begs the question, “Why would anyone actually choose the provision of financial product advice as their preferred career or indeed, as the centrepiece of a thriving business?”

It’s a definite yes for those prepared to build a business for the times.  The advice business models of last decade simply do not suit the fast changing environment of this decade.  That is evidenced by the number of adviser business owners who have exited the industry in recent years.  And the reasons go well beyond the exam.

Just take a look at the modern financial planning practices run by gen-X advisers and emerging gen-Y advisers.  They look nothing like the product-driven, commission-funded businesses of the past.  They are completely client-focused, client-funded and innovative in the way they deliver knowledge-based advice to clients.

The only way that high practice (fixed) costs and adverse ASIC & AFCA outcomes can hurt advisers is if they sit and wait and do nothing different.  The antidote is a combination of energy, expert knowledge, ethical practice and practice management skills, in particular financial management.

Therefore, key among the desired goals of change have to be (a) to convert high costs to manageable costs (b) to reduce high risk to low risk and (c) to turn around diminishing rewards into high rewards, in terms of both money and lifestyle.

And one last point to ponder!

If you are an adviser and not providing ‘financial product advice’, a concept narrowly defined in the Corporations Act, then perhaps it’s time to reconsider whether you should be playing in ASICs backyard at all.


Image credit: Chase Clark (@chaseelliottclark)

The great irony of financial advice regulation in Australia is that Chapter 7 of the Corporations Act covers every aspect of selling financial products, including the disclosure and behaviour obligations of AFS licensees and their representatives who advise, arrange and sell those products.

Meanwhile, life-changing strategies not involving a financial product, don’t rate a mention.  For example:

  • Financial education
  • Managing money
  • Household budgeting
  • Property affordability
  • Estate planning strategies
  • Govt. services support (e.g. Centrelink, aged care)
  • Mortgage broking (requires Australian Credit Licence authorisation)

Why is this so?

The reason is that these services lie outside the definitions of a ‘financial service’ (s766A) and ‘financial products’ (s763A-764A) for the purposes of AFS Licensing.

To add perspective, the Corporations Act 2001, including Chapter 7, was introduced to address a range of unconscionable financial product practices of the past, when most advisers were agents of life insurance companies offering high commission based super and investment products. Hence the sharp legislative focus on financial products, disclosure & conduct obligations, BID, etc.

Nevertheless, non-product advice is critically important.  It is in high demand.

And indeed for AFSL authorised advisers, the obligation to provide this type of advice when requested is heavily reinforced by both RG175 and the Financial Planners & Advisers Code of Ethics.

Interestingly though, if non-product advice is the only advice being provided, and no financial service ‘as defined’, is being provided (which includes ‘financial product advice’ plus a few other specific services), then there is no need for an AFS Licence under current law.

So what is the consequence of this?

With such a severe shortage of financial planners in Australia, it means that the door is open wider than ever for a new wave of education; strategy, coaching and other service providers to fill the much needed ‘non-financial product’ advice gap in the market.

And ironically, this demand is very likely to be met in part by of the legion of advisers who have recently been forced out of our industry; particularly given the tough and worsening economic times we are currently living through.

Such people already exist in our industry. They can’t use restricted names like financial planner and financial adviser, but they can use identifiers such as ‘Money Coach’, ‘Money Management Strategist’ and ‘Centrelink Support’.

I am not suggesting that these service providers should remain unregulated; and we certainly don’t need amateur finfluencers misguiding a vulnerable population.  As we know, bad strategy is just as dangerous for clients as inappropriate product.  It is critically important to have appropriately educated, competent professionals helping our community, because a huge proportion of low income and disadvantaged Australia is crying out for basic financial help and guidance that doesn’t involve a financial product.

Footnote: Former risk advisers please note that claims handling is now a financial service and requires an AFS Licence. See ASIC INFO 253