Key point: Financial planners should seize this chance to develop professionalism writes Tim Mackay and Claire Mackay.

Note: This article by Tim Mackay and Claire Mackay was originally published in the Australian Financial Review.


As young financial planners we want to be proud of our chosen profession. The Government’s FOFA reforms provide a practical framework to protect consumers and drive increased professionalism in financial advice.

The reforms include a best interest obligation, a two year opt-in requirement, strengthening ASIC’s powers and clarification of some of the more detailed aspects of the FOFA reforms.

From July 2012 consumers will be prompted every two years to consider whether they are receiving true value for money for the fees they pay. While medicine, law and accounting have long embraced the concept of opt-in, the emerging profession of financial planning has not.

Constant industry opposition to opt-in prevents the shift from a sales based approach to an advice based profession. However, our industry must recognise that if consumers don’t want to pay for ongoing advice, they should not be forced to do so.

Of course, there will be long term winners and losers from these reforms. The competent, transparent and professional advisors will win and the mediocre salespeople who rely on volume bonuses and commission kick-backs will lose.

Advisers who are actively engaged with their clients who already show they provide value-adding advice will not only survive but thrive. Advisers flogging products and relying on passive income streams will struggle. That is a great result for consumer protection and increased professionalism.

We are disappointed the Government has compromised by allowing the continuation of the 130% up front life insurance commission model in superannuation. Commissions paid on individual life policies held in an SMSF or in a choice fund will continue in perpetuity. Only members in a MySuper or default super fund will be commission free. This will increase the perceived benefits of MySuper for Australians keen to maximise their super savings.

The industry argues that opt-in will add to costs, complexity and consumer confusion. Actuarial experts Rice Warner estimate opt-in will cost just $11 per client, a far more reasonable figure than industry’s widely ranging claims of $100 to $250 per client.

Additionally, the government is providing significant flexibility in how advisors can meet their opt-in obligations via online forms, phone calls, meetings or mail. This is a major win for reducing administrative costs. Clearly the industry claims of increased costs, complexity and confusion do not stand up to detailed scrutiny.

One industry win is that opt-in will only protect consumers who become new clients after 1 July 2012. It will not apply to existing clients and consumers who take up financial advice services before then.

Advisors relying on passive income streams they have either bought or built up over many years will not be impacted by this reform. Under grandfathering provisions their revenues stream can continue in perpetuity. From July 2012 there will be two tiers of consumers – new clients who receive higher protection under opt-in and existing clients who do not. While truly professional financial planners will provide this higher protection to all clients, others may not.

Our advice to consumers: Use opt-in as an opportunity to renegotiate your current advice service to ensure you are better protected. If your current advisor or life insurance agent does not offer you the opt-in protection, then in July 2012 opt-out from the old system and opt back in under the new rules. So, either engage another financial planner under the new rules or, if you are satisfied with your current advisor, renew your service with them under the new rules.

We hope the industry will redeploy the significant resources being used to fight regulatory reform to the more constructive task of developing a true profession.

Our profession has wonderful growth prospects underpinned by Australia’s compulsory super system. The professional, commercial and consumer benefits that arise out of these reforms are significant. They will enable consumers to identify who are professional advisors and who are mere salespeople.

Implementing these reforms is our profession’s challenge and greatest opportunity. Professional financial advice will always be worth paying for and we look forward to the coming years with great excitement for a profession that one day we can one day be proud of.

Tim Mackay and Claire Mackay are advisors at Quantum Financial.


You can view the original Australian Financial Review article by Tim Mackay and Claire Mackay ‘Opt in for long-term profits’ in PDF format below.

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About Quantum Financial

Quantum Financial is Australia's most awarded financial planning practice. We advise a select group of successful professionals, business owners and jet setting retirees. Our website is here

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