Two key opportunities for planners in FoFA. Client engagement and the ability to deliver good advice in a way that clients value will become increasingly important in a post-FoFA world, according to Mark Ballantyne, General Manager of Financial Wisdom. In a recent No More Practice blog, he said these are two key opportunities in the FoFA legislation for advisers. “Engaged clients – those ones who see regularly and love you enough to give you referrals – will always be the cornerstone of a business that survives FoFA,” said Ballantyne. Another opportunity in FoFA for advisers lies in the potential to explore and develop more innovative ways of adding value to clients, such as scaled advice solutions, he said.
Advisers key to restoring confidence. Financial advisers play a key role in restoring consumer and investor confidence, according to the Association of Financial Advisers (AFA). “As client-first educators, advisers can lead discussions which focus on the positives and what’s right with our world. Challenging periods in history, such as the one we are currently experiencing, actually increase the demand for financial advice,” said AFA CEO Richard Klipin. He cited research which found that overall, average Australian families are better off to the tune of over $11,000 per annum than they were in 1984, while those earning income from investments have experienced income growth of $547 per week above their living costs in the same period.
Grandfathering and fees clarified under new FoFA regulations. The grandfathering of any conflicted remuneration does not extend to benefits given in relation to new clients or new financial products, according to draft Future of Financial Advice regulations recently released by Treasury. Money Management reports that the ban on conflicted remuneration does not apply if the benefit is given under an arrangement entered into before the day of commencement, and if the benefit is not given by a platform operator. The regulations have the effect of “grandfathering all payments under an arrangement entered into before the application day” while they also exclude product fees from the definition of an ongoing fee arrangement.
Satisfying FoFA’s annual disclosure regime Many financial advisers are looking at ways of satisfying FoFA’s annual disclosure regime despite uncertainty about the reforms, according to IRESS senior business development executive Michael Kinens. Investor Daily reports that there are concerns for providers who cannot deliver enough information to allow disclosure to take place for each client. While some legacy products might not be able to generate income, Kinens said advisers should be upfront about investment commission and disclose this to clients. Under FoFA, advisers will be need to provide an annual statement outlining fees charged and services provided to clients paying ongoing fees under opt-in provisions.
Government cracks down on super fund directors. Requirements for superannuation fund trustees and APRA powers over superannuation will both increase under legislation that recently passed the House of Representatives. The measures contained in the legislation implement changes recommended by the Cooper review into the governance, efficiency, structure and operation of Australia’s superannuation system. The legislation: requires a trustee to put the interests of members of funds first at all times; clearly identifies the duties that apply to directors of superannuation funds, including acting honestly and in the best interests of members; and includes a power for APRA to make prudential standards for superannuation.
Focus on absolute returns for retirement portfolios. Allocations to fixed interest investments will likely rise over the coming five years as superannuation investors seek capital stability and recurring income for their retirement portfolios, according to John Wilson, head of PIMCO in Australia. Super Review reports that there is growing investor interest in products that diversify away from traditional equity risk approaches, and Wilson said superannuation funds need to consider investment portfolios that generate income in different ways given market volatility and the need to generate stable income for those approaching or in retirement.
Investors set to remain cautious. Many investors are still cautious about the equity market as a result of the market volatility that has persisted since 2008, according to Franklin Templeton research. It found that investors’ ability to view positive equity market performance constructively has been thwarted by market volatility, which is as at odds with the stability they are seeking. “The reality is that investors who have been waiting for the right time to get back into the equity market have been missing out on the market rally we’ve witnessed over the past few years,” said ,” said John Greer, executive vice president of corporate marketing and advertising at Franklin Templeton Investments.
Interest in alternative investments on the rise. Investors are diversifying their portfolios to include a range of alternative investments in a bid to protect against volatility, according to HSBC Alternative Investments. Investor Daily reports that allocation of alternative investments in Australia market have risen around 17 per cent over the past 12 months, and HSBC Alternative Investments global head of portfolio management Faraz Sultan expects this to continue. He said investors wanted to tailor their allocations in terms of liquidity and strategy and were moving away from using off-the-shelf investment products.