slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Comments on Tom Valentine’s paper The Problems with Investment Advice Alex Erskine*, Strategic Intelligence Melbourne PowerPoint Presentation
Download Presentation
Comments on Tom Valentine’s paper The Problems with Investment Advice Alex Erskine*, Strategic Intelligence Melbourne

Loading in 2 Seconds...

play fullscreen
1 / 8

Comments on Tom Valentine’s paper The Problems with Investment Advice Alex Erskine*, Strategic Intelligence Melbourne - PowerPoint PPT Presentation


  • 110 Views
  • Uploaded on

Comments on Tom Valentine’s paper The Problems with Investment Advice Alex Erskine*, Strategic Intelligence Melbourne Money and Finance Conference 1-2 July 2013.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Comments on Tom Valentine’s paper The Problems with Investment Advice Alex Erskine*, Strategic Intelligence Melbourne' - glenda


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Comments on Tom Valentine’s paper

The Problems with Investment Advice

Alex Erskine*, Strategic Intelligence

Melbourne Money and Finance Conference

1-2 July 2013

* The views expressed are the personal views of the author and, while they have benefited from insights and comments from colleagues, the views are not necessarily shared by the Australian Securities & Investments Commission.

why the industry will find a way to prosper
Why the industry will find a way to prosper ...

Source: Strategic Intelligence, from ABS data

the paper tom could have written
The paper Tom could have written:
  • FoFA: a compulsory (but gradual) business model change in the financial advising industry
    • FoFA a response to principal-agent problems/agency costs/failure of gatekeeping due to conflicts of interest/misaligned incentives
    • Not all problems directly addressed (eg vertical integration, grandfathering)
  • Is the industry changing to improve the usefulness and availability of financial advice?
  • Existing paper could have tied topics raised (risk profiles, disclosure, risk metrics) to the tension points in FoFA
why is there a financial advising industry
Why is there a financial advising industry?
  • 3 practical reasons for an advising industry
    • More savers now – employees now compelled to, for DC retirement incomes
    • Finance–tax–welfare rules individually and in combination very complex – too complex to be resolved by education alone
    • The future is not known
      • Made worse by increasing longevity and post-GFC rise in uncertainty, risk and correlations, and the fall in yields/values
the fofa reforms nb parliament makes the rules and asic supervises their implementation
The FoFA Reforms [NB Parliament makes the rules, and ASIC supervises their implementation]
  • A best interest duty: advisers to act in best interest of their clients. Advice to reflect client’s ‘objectives, financial situation and needs’.
    • [p5] ‘risk profile’ questionnaire is one tool of many that may help.
    • [p7] FoFA prohibits payment of asset-based fees on geared amounts (NB not commissions on geared amounts). Also, an SOA not a new requirement.
    • [p7] Key heresy: ASIC does not approve prospectuses, PDSs or products. Can only issue ‘stop order’ if they don’t comply with legal requirements on disclosure. Informational content of PDSs set in legislation.
    • [p8] Is allowing insurance sales to attract commissions an inducement to over-insure? Legislation reflects view that Australians generally are under-insured. ‘Churn’ self-regulation again being addressed, now by FSC.
  • What is good advice? – Equities, property and leverage until close to retirement?
    • [p6] What are ‘long’ & ‘occasional’? A long downwave can last most of a working life or occur inconveniently later in a working life.
    • [p7] What is ‘moderate’ leverage? Maximums tend to become minimums.
slide6

Management of conflictsThe test of adequacy of management of conflicts is to ask: if it was in the best interest of clients, would most advisers recommend it? If not, find out why.

  • [p9] Agree on problem persisting with vertical integration
    • But there are protections for consumers
      • Priority for interests of clients over own or related parties’ interests.
      • Conflicted remuneration (eg a volume bonus) is banned unless it can be demonstrated it is not conflicted.
      • RG 148, RG 166 and the MDA review all try to limit impact of vertical integration.
  • [p10] Advice from different sorts of agents/advisers
    • Insurance brokers need an AFSL.
    • Mortgage brokers covered by National Credit Act.
    • Advising on RE investments by SMSFs is a financial product and so is regulated.
  • [p10] Educational qualifications of advisers
    • 25/6/2013 Consultation paper on increasing knowledge and skill requirements for advisers – lift education standards eventually to a degree for Tier 1 advisers.
    • No amount of education or regulation can guarantee honesty, integrity, intelligence or commonsense.
industry response to fofa some positive some negative
Industry response to FoFA– some positive, some negative
  • Industry is changing
    • Current vertical integration approach of choice seems to be MDAs.
    • Vertical integration not just in the big end of town – some smaller advice groups white labeling/buying own platforms.
  • Grandfathering is creating a new conflict
    • One response seems to be to grandfather to last possible date and plan then to not touch client (ie under-service pre-FoFA clients, over-service FoFA clients).