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Advice heavyweights ‘fear mongering’ on FOFA

The number of self-licensed planners is set to grow as large dealer groups continue to place restrictions on their advisers, according to netwealth head of advice Simon Micallef.

Speaking at the Association of Financial Advisers (AFA) conference at the Gold Coast this week, Mr Micallef said boutique dealer groups were also likely to benefit from the trend.

“There’s been a bit of fear mongering going on, especially from the larger groups [about the best interests duty],” he said.

The larger players in the industry have been putting out the message that the Future of Financial Advice (FOFA) reforms will create a burden for advisers, and that “being vertically aligned will probably be the answer to that”.

The comments came after the Australian Securities and Investments Commission (ASIC) deputy chair Peter Kell pointed to the “hype” in the industry around the best interests duty.

“There’s a perception out there that best interests means advice will have to be gold plated,” he said.

Mr Kell said the regulator will consider whether a “reasonable advice provider would believe it is likely that the client will be better off if they follow the advice”.

“Clients don’t expect you – and nor does ASIC – to give gold-plated advice or to recommend gold-plated products and policies,” said Mr Kell.

Mr Micallef said larger dealer groups are putting a lot of restrictions on their authorised representatives – whether it is approved product lists, Financial Ombudsman Service procedures, loan-to-value ratios or simply compliance generally.

However, it is definitely more expensive to run a ‘like-for-like’ self-licensed business, he said – citing higher professional indemnity premiums as an example.

“If you have half a million dollars worth of revenue – and you’re part of a dealer group – you’re generally paying about 1.5 per cent of your total gross revenue for that. So $7,500 for the premium,” he said.

For a self-licensed premium, the premium is averaging between $15,000 and $20,000, due to the group purchasing power of the dealer group, said Mr Micallef.

But the Boutique Financial Planners Principals’ Group recently proved that cheaper premiums are possible for self-licensed planners if they band together.


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