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Page 1

Midwinter FOFA Industry Survey

Midwinter’s “FOFA Advice Impact Industry Survey” comprised of responses from over 320

financial planners, representing over 70 licensees.

The “FOFA Advice Impact Industry Survey” took place between 16th May and 23rd Apr

2013 and was specifically designed to target independent financial planners &

licensees.

Feel free to reproduce this work in its entirety. Please attribute excerpts and

quotations to Julian Plummer, Managing Director.

We do ask that if you make reference to the survey, please refer to it as the

Midwinter FOFA Industry Survey.

Background

Midwinter is currently releasing a range of FOFA solutions to assist advisers in meeting their

impending FOFA compliance obligations.

Midwinter’s “two-pronged” approach caters for advisers who may be at different

stages of their FOFA implementation timelines.

Objective

In anticipation of the release of our FOFA solutions, we undertook a comprehensive industry

survey of advisers to explore the impact of FOFA on their businesses. This industry survey

helped us gain insight into what advisers are thinking in regards to the FOFA reforms, how

advisers are managing their FOFA implementation and its impact on their ability to operate a

profitable financial planning businesses.

This industry survey was designed to obtain the opinion of planners at the coalface of FOFA

rather than the opinion of lawyers and compliance personnel.


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1. The type of planner

What type of financial planning business are you in?

Given the core of the industry survey was to ascertain how advisers were managing the

anticipated Future of Financial Advice (FOFA) reforms becoming mandatory on 1 July 2013, it

was important to understand the type of financial planner being surveyed.

Financial planners were separated into four broad categories:

Dealer group - product aligned, practice based (18%)

Dealer group – non product aligned, practice based (31%)

Boutique/Independent - financial adviser (IFA) (48%)

Bank/Institutional planner (3%)

The majority of respondents were Boutique /IFA planners.

Overcoming the ‘opt in’ hurdle

The FOFA ‘opt-in’ measure requires a financial adviser or planner who charges on-going fees

to send a renewal (‘opt-in’) notice every two years to clients.

2. The ‘opt-in’ exemption

Financial advisers bound by an ASIC approved code of conduct will be exempt from the ‘opt-

in’ provisions.

Results indicate that 38% of planners intend to rely on the ‘opt-in’ exemption and 6%

were unaware that the exemption exists.

Given the strong response to this industry survey, we believe this exemption from

‘opt in’ may provide a comparative advantage to advisers who are bound by an ASIC

approved code of conduct.

3%

48%

31%

18% Bank / institutional planner

Boutique / IFA

Non product aligned, practice based

Product aligned, practice based


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Are you relying on the exemption from opting-in clients that occurs

when an adviser is bound by an ASIC approved code?

3. Identifying opt in clients

The response to this question indicates there is much work yet to be done in regards

to advisers going through the process of identifying their ‘opt-in’ clients. This is no

easy task for planners and can be extremely time intensive.

62% of all planners have not finished identifying their ‘opt-in’ clients,

Midwinter’s FOFA manager has tools specifically designed to allow advisers to:

Sort and view clients by ‘opt in’ dates,

Change ‘opt in’ dates for client groups,

Manage ‘opt in’ notifications,

Reset ‘opt in’ dates for client groups,

Create file notes for occasions when no notification of opt-ins has been

received.

Have you identified your ‘opt-in’ clients?

4. Are you giving your clients the option to ‘opt-in’ electronically?

Just under half of all advisers were still unsure as to whether they would have the capability

to allow their clients to ‘opt-in’ electronically.

Only 21% of advisers could say for sure that they would be giving their clients the

option to opt in electronically.

38%

36%

21%

6% Yes

No

Not sure

Unaware of exemption

8%

35%

27%

31% I am exempt from opt-in

No, I haven't started yet

Partially

Yes


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Are you giving your clients the option to opt in electronically?

Midwinter’s FOFA manager allows adviser’s clients to ‘opt-in’ electronically, and will send

alert emails to clients who are in danger of lapsing.

Do you have a software system that manages your ‘opt-in’ obligations?

Question 4 highlights a central issue with the typical adviser’s preparation for FOFA, and that

is 35% of advisers do not currently have software that they feel can adequately manage their

‘opt in’ requirements.

In addition, a further 18% of advisers were not aware if their software had ‘opt-in’

capability.

Tackling the fee disclosure statement

Under the FOFA reforms, advisers receiving fees for giving personal advice under an ongoing

arrangement with a retail client must provide the client with an annual FDS setting out

information about:

Fees paid by the client,

Services provided to the client,

21%

21% 49%

9% Yes

No

Not sure

Exempt from opt-in

22%

20%

35%

18%

6% Yes

Being implemented now

No

Not sure

Exempt from opt-in


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Services that the client was entitled to receive.

The intention of legislation is that advisers will be in regular contact with their clients and will

ultimately require the advisers to demonstrate the value of the services they are providing to

their clients. The FDS will allow retail clients to consider whether they are receiving value for

money for the services provided.

5. Confidence with the FDS

Given advisers can potentially be required to start producing FDS documentation on 1 July

2013, their confidence in being able to produce a FDS is paramount.

The response to this question was surprising; with only 22% of respondents indicating they

were confident in knowing what information should be disclosed within a fee disclosure

statement.

Much of this lack of confidence arises from confusion around:

Should commissions be included in a FDS?

Are insurance disclosure requirements different from investment products?

What are FDS requirements for new clients vs. existing clients?

Should product fees be included in an FDS?

Midwinter’s FOFA Manager guides the adviser through the process of creating a FDS for a

client, automatically generates the required reports and clears up much of the confusion

around what is required to be disclosed within a FDS.

Are you confident in knowing what information

must be disclosed in the fee disclosure statement?

6. The Fee Disclosure ‘D-Day’

Question 6 highlights further concerns in regard to the typical adviser’s ability to start

producing a fee disclosure statement on D-Day.

Only 45% of advisers could say that they were prepared to start creating fee

disclosure statements on 1st July.

22%

64%

13%

Very confident

Reasonably confident

Not at all


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Do you expect to be able to start creating

fee disclosure statements come 1st July?

With many software providers promising much in the way of FOFA capability, some advisers

have been left in the dark in regards to how they will end up generating their fee disclosure

statements come 1st July.

One of the outcomes from the initial testing of our FOFA module is that advisers have found

that generating fee disclosure statements with our system is as easy as producing advice

with our system. We have reminded advisers that even while their FOFA systems and

procedures are being implemented – the quality of their advice is still paramount. Clients

seek out an adviser for the quality of their advice – not the quality of their FOFA systems. The

intention is that using our systems will allow advisers to spend more time on the advice

process rather than the compliance process.

7. So... do I include commissions in a FDS?

When working with our clients in implementing their FOFA solutions we have come across a

number of different opinions in regards to the question of disclosing commissions in the

FDS.

According to RG245.37, commissions do not generally constitute an ongoing fee for the

purposes of generating an FDS unless it was paid at the direction of the client. However,

RG245.40 warns against misleading clients into thinking the fees within the FDS are the only

payments received by the adviser.

Depending on your interpretation, this could either mean that generally commissions should

be included in an FDS, or it may mean that only adviser service fees should be disclosed

within the FDS. With this in mind, we have ensured that our systems will cater for both

interpretations.

Will you be disclosing commissions

(along with your advice fees) in your FDS?

45%

37%

13% 6%

Yes

Likely

Unlikely

No


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8. Integration with commission system data feeds

The generation of a fee disclosure statement is a time consuming task. The time required to

produce a statement can be reduced using commission data feeds to populate the fee

information.

When advisers were asked if their FDS documentation will be automatically populated with

data feeds from a commission system the majority of advisers were unsure.

Advisers who were sure that their commission systems fed into their FDS were in the

minority.

Will your FDS be automatically populated (integrated)

with data feeds from a commission system?

Advisers using Midwinter’s comprehensive online FOFA module can access Easy Dealer™ and

Revex as their brokerage solution. These optional brokerage data feeds can then power the

fee disclosure statement generation within the full Midwinter system – allowing the adviser

to quickly and easily generate their customised FDS within a specific date range.

124

79

62

55

Yes

No

Not sure

Only when to difficult too determine if the fee is an advice or commission

27%

39%

34% Yes

Not sure

No


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9. How many advisers utilise client segmentation?

Customer segmentation allows advisers to cater to specific groups of clients effectively and

allocate resources to best effect. As advisers can determine which clients receive particular

services through their segmentation model, the “services provided and received” section of

an FDS can be potentially populated using the segmentation model.

This question was asked as a lead in to question 10, which asks if advisers use a client

segmentation model to assist them in their FDS generation.

Do you utilise a client segmentation model?

Only 35% of all advisers use a client segmentation model for all clients in their practice.

These results should cause much concern to software providers who “push for” the

automatic generation of fee disclosure statements through the use of client segmentation.

The fact is that most advisers do not use client segmentation.

10. Segmentation and the FDS

The concerns highlighted in question 9 were confirmed when we asked how many advisers

would use their client segmentation models to produce their fee disclosure documentation.

If so, are you using your client segmentation model to automate the

summary of services in your FDS to each client?

35%

35%

28%

3%

Yes, for all clients

Yes, for some clients

No

Not sure


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Only 27% of advisers who use client segmentation intended to use their model to automate

the summary of services section within their fee disclosure statements.

Will advisers be aligning the disclosure dates of clients?

The response to this question gives us an idea as to how “centrally managed” advisers are

intending their fee disclosure generation capabilities to be.

The aligning of disclosure dates by advisers requires extensive bulk management capabilities

within their financial planning software.

We believe the high amount of advisers who were not attempting the alignment of

disclosure dates may have a positive impact, as it may lead to a more specific result in

each client’s fee disclosure statement.

It may also mean that adviser’s expectations have been controlled in terms of

aligning client disclosure dates.

Will you be aligning all disclosure dates

(to the one day) for all clients?

27%

27%

25%

21%

Yes

No

Not sure

Don't use client segementation

10%

26%

41%

23%

Yes

As much as possible

No

Not sure


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FOFA and financial planning software

11. Mandating a FOFA solution

Given the importance of FOFA compliance at a licensee level, it is understandable that any

FOFA solution would tend to be set by the licensee.

A surprisingly high number of advisers (33%) however have indicated their FOFA solution

was not being mandated by the licensee.

The collation of adviser revenue data is both an art and a science. This is made difficult due

to the lack of standardisation of fee information coming from each product (platform)

provider. Providers like Revex and EasyDealer standardise the revenue data, allowing advisers

to be paid.

Many advisers would like to use this information to provide visibility on the revenue they are

receiving from each client on their client list. To do this – the licensee would need to

organise commission data for each adviser’s clients, co-ordinate time and resources to clean

their commission data and then manage exceptions after each commission run.

In many cases the requirements above are impossible given the technology restraints and at

the very least it would take significant time and resources from the licensees.

Is your FOFA software solution mandated

by your licensee?

12. Switching financial planning software

With the inevitable impact that the new requirements will have on running a successful

advice business, the more influence FOFA will have when selecting financial planning

software.

It comes as no surprise when just over a quarter of all advisers indicated they would switch

away from their current provider due to poor functionality.

48%

33%

18%

Yes

No

Not sure


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Would you switch away from your main financial planning

software due to poor FOFA functionality?

FOFA and the quality of financial advice

13. Will FOFA increase the quality of financial advice?

When asked if FOFA would have any impact on the quality of their advice, the response was

resounding.

81% of all advisers surveyed did not believe that FOFA would improve the quality of

advice. With advisers playing such a prominent role as conduits for financial advice in

this country, it is concerning that advisers are not on board with FOFA.

Only 18% of advisers polled agreed that the stated objective of increasing the quality

of advice would be achieved.

Do you believe FOFA will have an impact

on the quality of your advice?

13%

28%

17%

26%

16%

Yes

Maybe

No

Haven't thought about it

Not my decision to make

18%

51%

30%

Positive impact

No impact

Negative impact


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14. How will FOFA improve the quality of your financial advice?

The expansion of scaled advice and the introduction of the Best Interest Duty were identified

as the areas of FOFA that would most likely increase the quality of their advice.

The removal of volume based payments was seen as the least likely part of the FOFA

reforms to increase the quality of their advice.

Which component of FOFA do you think will

most improve the quality of your advice?

FOFA and the financial planning profession

15. Reputation of financial planners

Only 30% of financial advisers polled believed that FOFA would have a positive impact on

their profession.

What sort of impact will FOFA have on the

reputation of financial planners?

36%

37%

14%

7% 6%

Best interest duty

Expansion of scaled advice

Removal on conflicted remuneration

Opt-in obligation

Removal of volume based payments

30%

43%

27%

Positive impact

No impact

Negative impact


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16. Time spent with clients

44% of advisers polled did not see FOFA impacting the amount of time spent with

clients.

Those respondents who believed FOFA decreased the amount of time they spent

with clients were almost identically offset by those who believed it increased the

amount of time spent with clients.

Has FOFA impacted your time

spent with clients?

17. The perceived effectiveness of the FOFA regulations

Broadly speaking, the objectives of FOFA are to raise the standard of financial advice and to

decrease the cost of providing that advice.

The results of this industry survey clearly indicate that the majority of advisers strongly

believe that FOFA will not achieve those broad objectives.

Do you think FOFA will achieve its objective?

9%

16%

44%

18%

13%

Large INCREASE in time spent with clients

Small INCREASE in time spent with clients

NO CHANGE in time spent with clients

Small DECREASE in time spent with clients

Large DECREASE in time spent with clients

2%

29%

50%

10%

9%

Yes, completely

Yes, partially

No, not at all

Not sure

Unsure of the objectives of FOFA


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18. Adviser competency sets

Advisers identified practice management and client engagement as the two main

components of their competency set that would most improve as a result of FOFA.

Advisers did not believe that FOFA would increase their technical skill set.

Which part of your competency set do you think will

most improve as a result of FOFA?

19. Productivity improvements

Not surprisingly, advisers believed that most attempts at increasing productivity would be

through increased use of commission systems and extended online automation.

Which of the following are you implementing to improve productivity

as a result of FOFA?

(More than one or none could be selected)

38%

36%

16%

6% 4%

Practice management

Client engagement

Adviser communication skills

Business development

Technical skills

48%

31%

28%

19%

3% 8%

Improve workflow tools

Extend online automation

Increased use of commission/revenue system

Increased use of para planners

All of the above

None of the above


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20. The adviser’s future in the industry....

A remarkable 58% of advisers surveyed in the industry had questioned their future as a result

of the FOFA reforms.

Has FOFA made you question your future within the

financial advice/planning industry?

21. The adviser’s future in the industry.... broken down by planner type

Product aligned practice based advisers (63%) were more likely to have questioned their

future in the industry (as a result of FOFA) as compared to their bank/institutional peers

(57%).

58% 32%

10%

Yes

No

Haven't thought about it

57%

58%

63%

33%

30%

32%

11%

12%

5%

0% 10% 20% 30% 40% 50% 60% 70%

Bank / institutional

Non product aligned, practice based

Product aligned, practice based

Haven't thought about it No Yes


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Further adviser comments

Adviser comments were very negative and were mainly to do with the perceived poor design

of FOFA, political interference in the planning industry and concern about increased costs

and workload.

We have included some of the adviser comments below.

Negative

Poorly designed

Can see no benefits to conflicted remuneration proposals FOFA have made.

Completely unnecessary, as current disclosure regimes are sufficient. Encourage

clients to get a second opinion if they are unsure or ask more questions.

FOFA is an issue but MySuper, auto consolidation and Intra Fund advice will cause

more damage to this industry than FOFA.

FOFA will not achieve what the Government hopes

I have no power to change current legislation. Maybe a change in government will

see a rebalancing of the system.

The FDS is the dead stinking cat to evolve out of FOFA because for the first time in

my 26 years, we have retrospective rules. And it's the issue that's keeping me awake

at night. Bill Shorten has caused a world of grief. Good riddance to him come the

election.

Pre FOFA I have always been compliant in every way, totally client focussed and not

product focussed at all. My real fear is that through the FOFA regulations I will slip up

and get pinged for an innocent mistake in relation to the Fee disclosure process.

Political

FOFA is a waste of time driven by the Industry super funds. It is of no benefit to

clients or the industry. I firmly believe it will cause a lot of advisers not to provide

advice to C&D clients

Is an aid for Union Funds with unlimited advertising funds

It was driven by Industry Super Funds. The best interest test is positive. Opt-in was

worst feature but has been neutralised. Replace commissions with advice fees is

good for planners and clients. Little effect on two big negatives for independent

planners - institutional dominance & tied advice and responsibility for product failure

Purely a Labour way to support Industry Super

Increased workload / costs / compliance

Compliance increases will mean financial planners will not do many jobs and will

select clients to focus on profitable areas. Public and planners will lose. Instead of

penalising 90% honest, supervise and penalise 10% dishonest. ASIC is incompetent


Page 17

and bureaucratic. Large firms like Macquarie get away with a slap while independent

planners are penalised and scared out of business. Remove red tape.

Fee Disclosure statements will result in a huge amount of time being spent creating

something that will probably be illegible and of no use to a client. The ridiculous

issue of this is that if you sit back, take commission and never speak to your client

you get 'rewarded' by not having to do them!

increase cost greatly/more compliance work/ not sure if it will benefit clients as we

have already based our work on assisting client in the past, if anything take our focus

away from the client

It’s a load of time wasting rubbish! Taking adviser time away from clients and pushing

up the cost of advice to those who really need it and now won’t get it!

Large impost on planners no real gain for the client, only protecting measures aimed

at clients moving away from individual planners and moving to cheap industry or no

frill product.

More compliance, yet I do not see how it will get rid of the shonks or improve the

behaviour of the product floggers in the industry

More costs for non-aligned practices to bear, making it more likely these practices

will have to leave.

Waste of time. It will not help a client one bit.

FOFA will drive costs up further with no perceivable benefit to clients, even if

politicians and bureaucrats think it will. Ordinary Australians, who are financially our

most vulnerable, will be less likely to seek financial advice due to costs and advisers

will be less like to work with them due to the costs to provide advice and services.

Other

FOFA we result in the decline of IFA advice we be further conflicted due to the lack of

independence. Advisors will be no more than distribution for 5 the majors. The

industry based funds will move into more scaled advice. Scaled advice is like getting a

builder who can only build 50% of your hose & the rest is up to you, Scaled advice is

Ok in theory but i feel will cause major issues

I am afraid FOFA will be a threat to the value of my business

Lack of quality development of products and services in the past few years. Too much

time spent on legal aspects which when completed will lead to development of

necessary product range.

Rich will get richer and the poor get poorer. The cost of doing business has doubled.

Companies will spend more money on technology to go direct to the consumer by

passing advises. Consumers do not understand this because it is not a level playing

field. This piece of legislation is forcing you to be a lawyer to give advice because

that's what boils down to at the end of the day.


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Neutral

Well meaning public service interference - could be much simpler without all the

options, exceptions etc. Just lay out the rules. My licensee has contributed nil to my

understanding or implementation - hence considering getting out of industry.

Positive

Creates huge opportunity for right strategic business model to improve client

outcomes particularly cost / fee reductions

Integrity of planners has been called into question recently, especially since the poor

stock market returns of 2007 and onwards. This will provide greater transparency and

more emphasis on fee for service. Clients will know what they are paying for and how

much they will pay, in advance like most other industries.


Page 19

Contact Details

Midwinter Financial Services Pty Ltd

Level 11, 99 Elizabeth St

Sydney NSW 2000

www.midwinter.com.au

[email protected]

Tollfree 1300 882 938

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Midwinter FOFA Industry Surveymidwinter.com.au/wp-content/uploads/2013/07/FofaIndustrySurvey.pdf · [email protected] toll free 1300 882 938 Page 1 Midwinter FOFA Industry Survey