"The government is committed to opt-in. We will take our chances in Parliament." Bill Shorten's voice echoes around the auditorium, bouncing across the crowd of faces he presently commands.
It was not the first time Shorten has stood in front of industry participants and pleaded the federal government's case on its Future of Financial Advice (FOFA) reforms. Though, today, at the Financial Services Council 2011 conference, the Financial Services and Superannuation Minister's voice does not waver, but rather is cloaked in annoyance.
"We think the idea that people should at least seek a renewed mandate from clients is not onerous," he says.
"I've seen some numbers that have said it would cost $100 every time this transaction takes place - I don't believe that. [Opt-in] is really the bare minimum, frankly. It's a pragmatic compromise."
For close to 12 months, Shorten has beaten his drum in favour of FOFA, and for the same period of time, segments of the industry have pressed him and his government to reconsider the reforms.
However, it seems that if the industry is expecting a compromise, it will have to wait at least another few weeks before Shorten delivers on his promise of draft legislation.
Until then, the industry continues its posturing on what may come. For those within the industry's platform sector, the focus of debate has been on opt-in and volume rebates.
"I think opt-in is the biggest concern and I think it's the biggest concern not just from the platform perspective, but the advice perspective," Colonial First State general manager of strategy Nicolette Rubinsztein says.
"In some ways, that's the thing that we've been lobbying most against because we just think it's an unnecessary policy. When you look at the package of FOFA reforms, you're getting rid of conflicted remuneration, there's no commission, there's no rebates, there's a best interest duty, you've got the competency requirements.
"You've got the cost of building opt-in and the cost of advisers in administrating it far outweighs any incremental benefit that consumers are going to get. So we feel very strongly about that."
Rubinsztein, who is also on the board of the Association of Superannuation Funds of Australia, has been lobbying the government alongside CFS chief executive and Financial Services Council board member Brian Bissaker.
"I think they are still determined to push ahead with it [opt-in], but they are concerned about the administration and cost involved," she says.
MLC & NAB Wealth investment platforms executive general manager Michael Clancy says the company broadly supports the FOFA reforms.
"We're pretty comfortable in where we are at in getting ready for them also," Clancy says.
"If you look at the key reforms, the removal of commission, we've been commission free in our platforms and dealerships since July 2010 so we're comfortable of that.
"The fiduciary duty I think we're supportive of a statuary best interest test, we've got strong licensee standards and a very thorough and rigorous process for assessing the quality of advice, so we're happy with the fiduciary duty.
"I think we disagree with the decision around the commissions on insurance in superannuation and there are ongoing discussions on that in the industry."
He says there are two areas where NAB is doing work, however, the group is eagerly awaiting the actual draft legislation around opt-in and white labels.
"We're comfortable that they can both be managed. We're just keen to see the final legislation so we can determine exactly the requirements that we'll be building to," he says.
In Macquarie head of insurance and platforms Justin Delaney's view, opt-in is not necessarily that difficult from an execution or operational perspective.
"I think at this point it's probably a little early to really get a good feel for exactly what the implications of FOFA will be, given there are still some things that are still being negotiated or finalised," Delaney says.
"One thing that we do know is that we expect opt-in will have an impact on the platforms insofar as an increase in orphan clients or a potential for orphan clients and how we deal with clients in an efficient way, but also balance their needs in terms of being able to have a relationship that doesn't involve advice potentially."
BT Financial Group head of BT Wrap Chris Freeman says it is the company's goal to "facilitate a seamless transition" for its advisers and their clients to the FOFA reforms, of which the new opt-in framework is a critical component.
"We believe platforms have an important role in supporting the industry's move to the new opt-in regime potentially through our technology infrastructure and service and support teams," Freeman says.
"We are seeking further clarity on the finer points which will impact how opt-in is implemented."
Cost versus effectiveness
The cost of opt-in is another bugbear for the platform industry. While Shorten has previously scoffed at industry figures that suggest it would cost $100 every time an opt-in transaction takes place, other industry costing slaps opt-in with a multi-million-dollar price tag.
At an individual platform level, Rubinsztein says in-house research has put the cost of building opt-in on its FirstChoice and FirstWrap platforms at about $5 million.
"It's not just the platforms that will build capability, all of the advice software will build it, so Coin, Xplan, and then there is the actual adviser's time in administrating it," she says.
She says attempting to explain the level of complexity of opt-in is difficult as there is a three-way dialogue.
"You've got the platform, you've got the client and you've got the financial planner, so because you've got those three parties that is what gives you the complexities because the fee is being deducted from the platforms," she says.
"So the platform produces the documentation, the planner will then have the discussion with the client, hopefully sign the [document] at the right time, and then the planner has to upload it back onto the platform so the platform can deduct the fee. So you see where the administration is and the potential for that process breaking down."
Delaney says costing for Macquarie will not pose too much of a concern, with the company believing it is well positioned to cope with the outcomes of FOFA, including opt-in.
"We already have a process where we already rebate fund manager rebates directly to the clients if they're asked to," he says.
"We've got a very transparent and choice-driven philosophy across the platform already, so I think we're reasonably well positioned, so unless there is something specific that we need to develop that flows out of the changes."
What advisers want
According to figures from researcher Investment Trends' 2010 platform research, 37 per cent of financial planners say their main concern is about client opt-ins.
"Client opt-ins is one of the top-of-mind concerns of financial planners. Now this survey was conducted when it was the annual client opt-in so it might have changed, but last year this was the financial planner's main concern," Investment Trends analyst Recep Peker says.
"What really sticks out for platforms to help financial planners are concerns around opt-in, helping financial planners show their clients that they are adding value and also ensuring that planners are able to provide advice at a low cost to their clients."
The research found financial planners expect their platforms to help with the client opt-ins and the administration of client opt-ins more than they expect from software.
"Their planning software is generally their dominant CRM (customer relationship management), but interestingly administering opt-in is also the platform that sticks out relatively to planning software," Peker says.
"So [we need] either platforms that will help reduce the cost of doing business or provide a lower-cost solution for their clients. The part around helping advisers reduce the cost of doing business is also important."
He says at present platforms are helping planners reduce the cost of doing business as well as helping with the transition to a fee-for-service model.
"Most platforms are thinking about the opt-in and waiting more for the confirmation on what will happen, but they are coming to a stage where they have a broad plan and, according to what the final outcome of the reforms are, they will implement that," he says.
Platform research from CoreData shows three-quarters of advisers surveyed expect some level of support from their platforms with regards to opt-in.
"When we looked at what was important to advisers this year it was really about lower cost to the investor and administration efficiencies, so they were the two key things that was really important for platform providers to be getting right," CoreData head of advice and superannuation Kristen Turnbull says.
"What we think, because there is a lot of downward pressure on advisers as a result of FOFA, they [advisers] are doing their best to avoid having to pass on this cost to clients.
"One possible way for them to avoid to pass it on would be for platform providers to help reduce the time and cost involved in implementing these by actually providing solutions that allow advisers to meet their client needs efficiently and cost effectively."
Turnbull says platforms view opt-in as a significant cost, however, research indicates the reform will be an opportunity.
"There is quite a big opportunity for platforms to step in and actually fill that gap for the advisers and actually offer them solutions that can enable them to meet their clients' needs and meet the needs of the reform as well in a cost-effective way," she says.
She says the top three things advisers want platform providers to improve this year are lower cost to the investor; administration, accuracy and efficiency; and client needs.
"When we looked at why an adviser is more inclined to allocate clients' funds through one platform over another, it really was about that clients need peace and ease of that process. The single biggest reason for them allocating funds from one platform over another was better value for the client followed by simplicity of use," she says.
"So I think what this shows is that platform providers who can really get this piece right are going to be the ones who are going to successfully retain the existing advisers they have within the platform and also potentially convert some secondary users into main users, so we could see a little bit more churn among the market over the coming 12 months depending on the way in which the providers are able to adapt and who does the best job of meeting these new needs."
What are platforms doing to fill the gap?
For Freeman, BT has already started to engage with its adviser and dealer group partners to understand the role platforms could play in the process and how we could support them.
"To this end, it's critical we involve them in the solution design process," he says.
"The key in moving to the new regime is to ensure that the administration of opt-in is efficient, effective and responsive for advisers and their clients."
He says the difficulty is understanding what exactly clients will need from their platform.
"So the scenario being that the client has seen an adviser and they've recommended an investment strategy within a platform and that relationship no longer exists," he says.
"So it's more an advice issue than an operational issue."
Clancy says NAB is yet to make a final decision on how it will support opt-in.
"We have a number of different options on how we could do that; it depends on the form of the final legislation," he says.
"With volume bonuses I suppose the outstanding question is around white labelling and whether it will or won't be allowed.
"We are prepared for either eventuality, we have platforms that have white labelling capability and volume bonuses that form a significant part of their support like the Navigator platform and we have other platforms that don't make volume bonuses part of what they offer, like MLC Wrap and MasterKey, so we have options both ways."
The lagging nature of the draft legislation is also weighing on the minds of other providers.
"If you think about it, the first time anyone will have to opt-in is 1 July 2014, so what we need to build now is actually just the ability to capture the date that the client starts," Rubinsztein says.
"We will split the build because what happens if the Labor government doesn't get re-elected is another thing we've got to build into that thinking.
"There is also some possibility with the administration concerns that we do get some easing in how the legislation is drafted. That is what we're hoping for because there are ways to make it less time consuming and less costly to administer."
She says CFS does think there might be scope for that by the time it comes for the legislation to be passed.
The fee issue
With the likelihood of opt-in becoming more of a reality, platform providers are considering further changes they may need to make, the most pressing reality being remaining competitive on a fee level.
"The other thing that we are doing is that we have to adjust the way we charge fees," Rubinsztein says.
"So, for example, under FOFA you can actually charge an amortised fee say over five years and it won't be subject to opt-in."
She says as long as the charge is for the upfront advice and it's basically an upfront fee but charged over a period of years, then that won't be subject to opt-in.
The reason for this is because the government has been keen to make sure everyone knows it's difficult for people to afford the full cost of the advice upfront, she says.
"So you'll have fees that will be then subject to opt-in after two years and then you'll have fees that are maybe charged for three or five years but then cease," she says.
"For example, if a planner agrees with a client that they are going to charge a fee of $1000 a year or half a per cent of assets, then after two years that fee will be subject to opt-in, so if the client doesn't sign the piece of paper saying they are opting in, then that fee will cease.
"So that means that we have to build on our platform the ability to send a reminder to the planner saying 'your client is due for opt-in' and if we don't receive a notification back, then we will need to stop deducting that fee."
Clancy says for the moment, NAB does not intend to review the fees its platform charges. "It's a competitive marketplace out there for sure and we're seeing a number of different platforms re-price over the last six months or so," he says.
"We launched MLC Wrap only recently, January this year, so that's our last re-pricing event. I suspect that as the industry gets clarity around volume bonuses and white labelling that there will be more downward re-pricing pressure."
Delaney says re-pricing is not a consideration for Macquarie as the company regards its role as enabling advisers to provide advice. "So the relationship between the client and the adviser is the primary one and it's at that point of the relationship where how fees are charged and how they should be determined and the platform is really a conjoint to help that process," he says.
As the countdown to September and the parliamentary spring session continues, all the industry can do now is continue being patient. «
