The Opt-In requirement contained in the proposed Future of Financial Advice legislation is fundamental to elevating the status of the current financial services industry into the profession Australians deserve.

The current situation where opt-in is the default option, has cost consumers much more money than many advisers dare to admit. The $11 per client cost estimate (by Rice Warner Actuaries last year) of proposed FOFA legislation is the proverbial drop in the ocean compared to the unseen costs sucked out of client balances thanks to years of the current default opt-in on their funds.

Consider that nearly seven out of 10 Australians own a wealth management product. In this context, the most recent ABS Survey of Income and Housing, compiled for the Association of Superannuation of Funds of Australia (ASFA), show the average account balance in 2009-10 was $71,645 for men and $40,475 for women.  

$627.72 per couple per year is significant money…

Assuming an average  ‘advice’ fee of 0.6% (and that’s low) that amounts to $429.87 for each average bloke and $242.85 for every average woman every year that automatically rolls into the average advisers bank account whether he does anything or not. They are not small amounts of money every year.

The $11 one-off cost to a more transparent opt-in arrangement seems good value compared to the automatic $627.72 deduction from the bank account of average Australians every year?

But wait, there’s more.

Our own Dashboard research (accumulated over our 20 years working this industry) tells us that approximately 80% of clients in financial planning firms are considered ‘inactive’.

So, if an average adviser looks after a total number (active and inactive) of, say, 500 clients with the average fund balances from ABS Survey of Income and Housing (assume 50%/50% split between male/female clients), that works out to approximately $28m in funds per adviser.

$42,000 for what?

I’m giving this average adviser the benefit of my many doubts that the majority of these funds aren’t distributed equally among all 500 clients (i.e Pareto’s 80/20 rule). But even if $7m was the accumulation of small balances of inactive or low touch clients why does that adviser deserve the $42,000 ($7m x .6%) of on-going  annual revenue from inactive clients each and every year when he acknowledges the clients are inactive and therefore he is doing very little if anything for it?

The Industry Super Network went further last year in their September report when they estimated that up to 2 million Australians were paying for financial advice they were not receiving.

Also, despite today’s economic headlines, without mandatory opt-in proposed by FOFA, things are only going to get better for the average adviser with additional $80B a year flows to the wealth management industry thanks to super guarantee charge alone.


In this light, I query the intelligence of the argument from the head of the Australia’s Association of Financial Advisers – Richard Kilpin – who thinks opt-in is poor policy as it does nothing to protect consumers (IFA Magazine #587 “Negotiating the Opt-In Maze” Jessica Gadd pg 26).

I reckon it does plenty to protect consumers, particularly the inactive ones.

It stops the automatic default payment for something they don’t get.

What do you reckon?

PS – I’m also hoping that the inevitable son or daughter of FOFA removes the proposed opt-in grandfathering provisions on an adviser’s existing client base – isn’t it just feather-bedding out-dated practices?

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