The Royal Commission, Fees for no service and our business.

If you’ve been following the news recently you have no doubt heard about some of the outcomes of the Royal Commission, in particular, the behaviour of some of the banks’ financial planning operations around the manner in which their services have been provided and fees collected for no advice.

In light of some of the revelations that have come out of this enquiry, we wanted to communicate with you as an Enva client to share our views and explain what our relationship is to the companies being questioned.

From the beginning, Enva’s vision has been to be a trusted brand for financial advice rather than a seller of financial products. As we have evolved and grown as an advice business we have continued to challenge our own preconceptions and refine how we charge for our services in the knowledge that this directly influences how we and our staff behave.

Banks and other financial institutions have often blamed poor client outcomes on “bad apples” i.e. advisers or employees who maliciously intend to do clients harm. Having worked with many of these planners in previous roles outside of Enva our view is very different. Our opinion, backed up by research, is that poorly conceived systems, as opposed to the individuals working within these systems, drive bad behaviour and have the greatest influence on business ethics. The outcome being that, in the absence of rigorous controls, individuals will seek to serve themselves over others. Whilst this last point might seem harsh, the reality is that a financial planner employed by a bank with a family to support and debts to pay is highly likely to recommend and charge what they are instructed to, even when it conflicts with their own personal ethics. This is especially true when that same financial planner is held to account every day on the number of clients they are seeing and the revenue they are generating for their employer.

For more than 4 years now we have held ourselves as directors and our staff to a set of standards that ensures our business is focussed solely on delivering the best possible outcome for our clients.

These standards include:

NO ASSET BASED FEES – our fees for investment and superannuation advice are fixed and not calculated based on your total wealth or the products we look after for you. Asset based fees reward an adviser for directly controlling more of your wealth – this is one of the main reasons many financial advisers have an aversion to wealth creation through property – they can’t charge a fee for a percentage of your investment property!

 

NO ONGOING FEES – We recommend a review of your affairs at least every two years and for many of our clients, every year. If you meet with us for your annual service, we charge a fee. If you don’t, we don’t. One of the biggest headlines from the Royal Commission has been “fee for no service” where financial service businesses have charged an ongoing fee to their clients’ superfunds or investments even where no advice services have been provided. Major banks have now started refunding these fees, but we would never collect them in the first place.

 

NO ALIGNMENT OR RESTRICTIONS ON PRODUCT SELECTION – We do not have any volume-based relationship with any investment or super fund provider we recommend and we make every effort to find the best possible product for you every time we review your circumstances. Our licensee, Charter Financial Planning, does provide a list of approved products we can recommend, rather creatively called an “Approved Product List”. However, so long as we provide them with a formal request and include reasons for doing so, we can use any product in the market that suits your needs. Whilst this dispensation is provided on an application by application basis, to Charter’s credit they have never refused a request to use a non-approved product.

 

Our relationship with other businesses:

Providing advice on financial products requires an adviser be licensed – this can either be directly by holding an Australian Financial Services Licence (AFSL) with ASIC or as an authorised representative of a business that has an AFSL. Enva and its advisers are licenced by Charter Financial Planning, a business ultimately owned by AMP.

Charter provides us with systems and processes to ensure we provide you with compliant documents for which we pay them a fixed fee plus a percentage of our income. As part of this service, Charter also provides an Approved Product List (APL) which does have a focus on AMP offered products. However, as stated previously, Charter has never restricted us from recommending other products where appropriate. Because our focus is continually on what is best for you it is quite rare that we do recommend AMP’s products since your best interests are often best served keeping what you have or using a product from another provider (for example many of our clients have insurance or investment products from other providers including BT Financial Group, Asgard and ClearView, none of which are on Charter’s APL). Where you have been recommended AMP’s products or platforms, it has been because it was or is the best product for you. Our research is available to you if you ever wish to view it.

In the interest of ensuring complete disclosure it is important to note the financial relationships our advisers have with other financial institutions or companies.

Michael Baragwanath –

Provides services to –  TDVC Venture Capital Funds and OZProp Property Trust in his capacity as a consultant and receives a fee based on an hourly rate.

Provides services to – Spaceship Financial services in his capacity as Responsible Manager and receives a monthly fixed fee and eligibility to participate in the employee share scheme.

 

Anthony Read –

Provides services to – TDVC Venture Capital Funds in his capacity as an advisor to the project committee.

 

In summary, many of you that have worked with us over the years know our respective work history, that Darren has been in private practice for more than 10 years and that Michael has been a national manager with a major insurance company before returning to private practice nearly 4 years ago.

We know what great, client focused advice firms do for their clients and we know very well the insidious network of greed and self service that exists in all industries but is most damaging in ours.

If your friends and family have concerns about who they are working with it is important to know that many of our competitors are just as focused on their clients’ wellbeing as we are.

A quick checklist for them would be this:

  • Are they charging a fixed fee for their advice?
  • Do they only pay an annual fee or are they signed up to a monthly agreement with a confusing “fee disclosure statement”?
  • Can their adviser truly use any product they like or are they threatened by their license if they don’t use “Approved products”?
  • Are insurance commissions used to offset investment advice fees or do they receive both in full?

Kindest regards

Darren Farley and Michael Baragwanath

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