The early findings from the Financial Services Royal Commission makes for some interesting reading. While some of the news may not shock you, there are some key take ways that clients of financial planners should be critically assessing.
What is a Fee Disclosure Statement (FDS)?
The Future of Financial Advice (FoFA) reforms that came into effect from 1 July 2013 introduced the concept of a Fee Disclosure Statement (FDS). The objective of the FDS was to disclose fees paid by a client to a financial service provider over a 12-month period from a set “anniversary date.”
This means that you if you been a client of a financial planner since 1 July 2012, you should have received a minimum of five Fee Disclosure Statements.
It is important to note that the requirements of a FDS not only include the fee payable, but also the services that the financial planner agreed to deliver to you for the fee payable.
I have not received an FDS, can you please explain why?
Your relationship with your financial planner (and how the financial planner is remunerated) may be based on an insurance policy, or an old investment policy, where commissions are built into the cost structure. These commissions are not required to be disclosed in a FDS. However, you are entitled to know what commission your financial planner does receive by simply asking.
If you engage your financial planner on a 12-month basis and you agree to renew your fee each year by signing a new agreement and payment facility, you will not receive a FDS.
If you have a direct debit arrangement in place with no end date, you should still receive an FDS. This is because the fee would continue to be paid to the financial planner beyond the 12-month period if either of you are unable to meet or execute the new agreement.
What has the Financial Services Royal Commission exposed?
The FoFA reforms were intended to give clients the information to reassess each year whether the fee they have paid their financial planner was worth paying for the services received.
The Royal Commission has exposed the fact that some Australians have been paying a fee and received no service. Indeed some clients may not have had an opportunity to assess if they wish to re-engage with their financial planner because they may not even have received an FDS.
What should I do?
You should receive statements for your investments and insurances directly from the institution providing the products. If a financial planner is “attached” to a financial product, it will be referenced in those statements. The noted financial planner may be receiving remuneration and until you contact them and ask them how much and what services they are providing for the remuneration they are receiving; the gravy train will continue.
It is important to note that if you do decide to remove the financial adviser from the policy/investment, the cost of the investment may not decrease! In some cases, that fee may merely be re-directed to the financial institution administering and managing the policy/investment. Sometimes this is just policy of the institution, other times there are real systems & structural barriers to changing this (especially for legacy products). Either way, an alternative is to transfer the policy to a financial planner who actually delivers a decent service for the money.
Without exception, our clients seek to grow and protect their wealth. The starting point is to take responsibility for your financial wellbeing and undertake a financial health check. If you have the time and inclination, you can do it yourself. Or you can seek the services of a financial planner who can clearly demonstrate that they deliver a valuable service in return for the fees they earn
After all, you work hard to accumulate wealth and it’s only fair and reasonable that if you pay someone to work with you, that you can assess if the service is worth paying for.
Phillip Win
Managing Director, Senior Financial Planner
Profile Financial Services
t: 02 9683 6422
m: 0408 728 849
phillip.win@profileservices.com.au
www.profileservices.com.au