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This is a good time to make the point that …

Many advisers freely admit that they are too soft on clients and undercharge their fees. It is common to charge for the big tasks but not for the little ones (e.g. the 20 minute phone call, researching a question, follow up questions).

It’s a fact that most advisers are attracted to our industry because they are empathetic, compassionate people. We do this work because we want to help people. We want to make a difference.

However, when a sole practitioner is facing fixed costs of $30,000 – $50,000 every 1^st January to start the year, it is not possible to do that. In fact, it is critical that advisers stay in business and maintain good profitability in order to be able to continue helping clients. In other words, over generosity will kill your business.

Back to selling value instead of time …

Time is a resource used in the advice production line. We assign a cost to time spent because in a people-dominant business, we need to understand how much our services cost and we need to ensure we are recovering our costs and our salaries, even if it is our own salary.

However, we don’t need to sell time. The reason is that spending more time in producing financial advice doesn’t necessarily equate to increased value to the client. It could be an indication of being slow or inexperienced; or poor knowledge and skills.

Conversely, spending less time on a task, because you are now more knowledgeable and experienced, doesn’t diminish its value.

Excerpt from “THE ART OF ADVICE – creating a value-based financial advice practice” (CPD available soon)

Go to https://garyweigh.com/the-art-of-advice/

The post Clients pay for value, not time first appeared on Gary Weigh.

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 https://garyweigh.com/welcome-to-mentor-circle/

The post The Commissions-to-Fees challenge first appeared on Gary Weigh.

My answer is always the same. Don’t wait for the Labor government to rescue you.  That does not appear to be any government’s agenda.

If you want to stay in the industry, make a start now on upgrading your education.

I could be proved wrong, but personally I think the ‘experience pathway’ promise has ‘back-flip’ written all over it.  If it was going to be implemented, it would be here by now or at least on its way.

The reason for my scepticism is this.  Would the government really care if it back-flipped on this issue and kicked a few hundred more advisers to the kerb?

I doubt it.  Neither government in recent history has expressed any concern for the massive fallout from the adviser exam.  A bit more fallout would only serve to further strengthen the case for more institutional and industry fund advice.

So my suspicion is that a decision on this issue may be dragged out through 2023 until those who have 6-8 subjects to complete come under extreme pressure to meet the bridging education deadline which is effectively the end of 2025.

Furthermore, the government’s justification for not introducing the experience pathway, may well come in the form of opposition from peer advisers who have either completed, or are well into completing, their graduate diploma, degree or master degree qualification; who want to maintain the existing ‘level playing field’.

Author’s note: On 13th March 2023, just 3 weeks after writing this article, Minister Stephen Jones announced the delay of his response to  the QAR until after the May 2023 budget.  Although there is no specific mention of the 10-year experience pathway, safe to assume that it is also delayed.

The post The Experience Pathway; to be or not to be? first appeared on Gary Weigh.

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 post FORGET PRODUCT! BUILD A STRATEGIC SERVICE BUSINESS IN MENTOR CIRCLE first appeared on Gary Weigh.

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.

The post FINANCIAL PRODUCT ADVICE – HIGH COST, HIGH RISK & DIMINISHING REWARDS first appeared on Gary Weigh.

According to AIOFP executive director, Peter Johnston, in a recent letter to Parliamentarians, 29 suicide deaths have occurred in our industry over the past five years. In the same letter, Peter also expressed concern that the 1st October 2022 exam deadline will cause further deaths. 

Well that time has come!  I received a call from this week from an adviser subscribed to my exam tutorial program, and she told me that one of her colleagues in the same licensee group, also off the adviser register and struggling to pass the exam, had taken his own life last weekend, leaving a young family behind.

This must stop!!

Although long periods of Covid lockdowns haven’t helped, the adviser exam has been a contributing factor.  I talk to affected advisers every day and I know the adverse mental struggles they face, especially when their efforts to pass the adviser exam drag on for months and in some cases for 1-2 years.

In theory, a competency exam is fine but in practice it has been an unmitigated disaster.  The quick-smart disappearance of FASEA attests to that; and nothing has changed under ASIC’s supervision.  It is still exhaustingly long, arbitrary, overly-academic and laced with a style of questioning that many find difficult to cope with.

However, the bigger issue is the taking away a person’s living as the penalty for failing when they haven’t put a foot wrong in their professional life.  That’s the last straw!

It is high time for the current government to take positive action.

The post WHEN WILL THE ADVISER CARNAGE STOP? first appeared on Gary Weigh.

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

The post THE NEW ERA OF THE NON-LICENSED FINANCIAL SERVICES first appeared on Gary Weigh.

Not every statement made online by an unlicensed online influencer is a breach of the law but discussing any financial product or class of product online is definitely straying into dangerous territory.

In Australia, a financial services licence (AFSL) is required to provide a ‘financial service’.  What constitutes a financial service is defined at s766A /RG 121.24 and includes  ‘financial product advice’ which is subsequently defined at s766B / RG 121.25 as a recommendation / statement / opinion / report which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products.

The presence of ‘financial product advice’ (as defined above) is pre-requisite to the definitions of both personal advice and general advice.  That is, unless the advice is about a financial product AND that advice carries an intention to influence a client in relation to that financial product,  the advice is neither personal advice nor general advice.

The part about considering one or more of the client’s relevant circumstances is only relevant once it has been established that the advice is ‘financial product advice’.  It is only to determine whether ‘financial product advice is personal or general.  The specifics of what is considered to be a financial product is defined at s764A /RG 121.20.

General advice is the type of advice that licensed advisers typically deliver in a group context where the product-related intent to influence exists but it is not aimed at any one particular client.  Typical general advice settings include seminars, webinars, online posts, and emailing newsletters and product sheets to various client groups.

This type of activity by unlicensed influencers will attract the wrath of ASIC, particular ‘cash for comment’ product influencers.

If an influencer does cross the line into ‘financial product advice’, it is more likely to be general advice.  A factual statement or comment made to a group audience, can quickly change to general advice with one ‘intent to influence’ comment, such as a stock tip.  And it can easily escalate to personal advice by an ill-considered answer to an individual’s question.

All it takes is for the influencer to answer a product-related question asked by an audience member where the influencer’s reply takes into account one or more of the inquirer’s relevant circumstances.  An example of such a loaded personal advice question is, “I am 65 and have just retired so is the type of EFT you are endorsing suitable for me?”

The problem for unlicensed ‘influencers’ is that many earn money from their online influencing activities, often from promoting affiliate links.  If an influencer receives benefits or payment for their comments in relation to financial products, they are more likely to be providing financial product advice because receipt of payment indicates an intention to influence the audience.

Read ASIC INFO 269 ‘Discussing financial products and services online’ recently issued in March 2022.

The post ONLINE INFLUENCERS AND UNLICENSED PRODUCT ADVICE first appeared on Gary Weigh.

Superannuation is so much more than a financial product.  It is the start of a ‘strategy conversation’ that can be used to reach into every aspect of a client’s financial life.

Think about it.  If you undertake even the simplest ‘superannuation review’ you will address the following issues:

• Investment
• Insurance protection
• Retirement saving strategies
• Estate planning.

All of these planning disciplines have broader application outside super as well.  In fact, if you look at the sum of these planning disciplines, you will see it represents a large proportion of what financial planners discuss with clients every day. So in a sense,  superannuation can be regarded as a microcosm of the broader spectrum of financial planning.

So if you are talking to a client who is resistant to super (which is usually based around the preservation rules, i.e. super being locked up), then the conversation can be easily moved to the same or related strategies outside super with something like:

“I understand your concern, so let’s address the preservation issue by looking at the same planning strategies both inside and outside super; and develop a combination  of super / non super strategies, which might include:

• Retirement saving inside super & shorter term lifestyle saving outside super
• Combined super & non-super insurance protection
• Binding Death Benefit Nomination in super with all other estate planning needs outside super.”

This approach does require a strategy mindset, rather than a product mindset.  Once you, the adviser, are across superannuation strategies, you realise that there is so much more to gain, not just in terms of additional revenue, but also in terms of increased client satisfaction and their long term retention.

My view is that the super conversation should be introduced early in the client relationship (i.e. more than just an item on a fact find); and early in your client’s life-cycle.  Many young people are super-resistant because quite apart from the preservation issue above, (a) retirement seems so far into the future and (b) there are more pressing financial needs.  So it is important to have younger clients on the same page early with their approach to superannuation.

For example, an appropriate conversation starter may be the First Home Super Saver Scheme for individuals and couples buying their first home.  Whether or not this particular strategy is ultimately pursued (given its specific terms & conditions) is irrelevant for the purpose of this article.  The point is you have brought it to their attention, and introduced superannuation early as a possible short term saving solution.  You have showed younger clients how superannuation can be used to achieve both short term goals and long term goals; i.e. saving for a home and saving for retirement.

My Superannuation and Retirement Coaching Pack is now available.

WARNING: The above article about superannuation is for financial advisers only.  It should not be mistaken by other readers for any form of personal or general product advice.  If you are reading this article and you are not a financial adviser, please seek advice from an authorised adviser to suit your particular situation and needs.

The post SUPERANNUATION – THE PLANNING CONVERSATION STARTER first appeared on Gary Weigh.