The Financial Services Council’s (FSC) plan to reform the advice sector, which it says will deliver cost savings of $91 billion over 20 years if implemented, have the backing of other peak bodies.
FSC released its proposed measures last week in a white paper, after launching a consultation in April to explore ways to address the many challenges facing advisers such as increased red tape, a rising cost burden and affordability issues that are driving consumers away from seeking professional guidance.
“Our recommendations will improve the economics of the advice industry, lower the cost of delivering advice to clients and increase the number of Australians who can access advice,” CEO Sally Loane said.
“Current regulations prescribe compliance obligations at every step of the advice process.
“They are an unprecedented driver of cost for financial advisers and consumers, and are past their use-by date.”
A key recommendation in the white paper calls for raising the threshold under which consumers are identified as “retail clients” to those with assets of less than $5 million, up from $2.5 million, and to introduce an inflation-linked index to the threshold.
The white paper also proposes axing the so-called Safe Harbour steps for complying with the Best Interest Duty rule and replacing the “complex” statement of advice (SOA) regime with a “simpler, consumer-focused” letter of advice.
Additionally, the Government should reform or remove the definition of “financial product advice” in section 766B of the Corporations Act and legislate definitions of “personal advice” and “general information”.
Analysis by KPMG shows that if the key reforms in relation to Safe Harbour, letter of advice and simplification of advice categories are carried out, the cost of providing advice would be reduced by almost $2000 per client or 37%.
“Financial advisers are experts at helping consumers make complex financial decisions, and too much of their time is spent completing ‘back office’ compliance requirements,” Ms Loane said.
“Addressing the compliance burden will reduce the time required to complete the advice process from 23.9 hours to under 16.8 hours per client.
“We call on the Government to commit to our plan.”
The Financial Planning Association (FPA) and Association of Financial Advisers (AFA) say they support the white paper’s proposals for the industry.
FPA CEO Dante De Gori says the white paper closely aligns with the peak body’s five-year policy platform roadmap that was launched last year.
“The release of this white paper has demonstrated the FSC’s commitment to joining with us in the discussion of how to put advice delivery back in the hands of professional financial planners and in the reach of all Australian consumers,” he said.
“The financial planning profession will now benefit from a stronger and unified representative voice on the issues most critical to them.”
AFA GM Policy and Professionalism Phil Anderson says the white paper is an important contribution to the ongoing debate about the need to fix the financial advice regulatory regime.
“We particularly welcome the recommendation on the removal of the Safe Harbour steps, the change of an SOA to a letter of advice, and the recommendation that financial advice be tax deductible,” he said.
The Advisers Association also backs the FSC’s recommendations, with CEO Neil Macdonald saying the proposal calling for the separation of product and advice, if adopted, would “represent a giant leap forward” for the industry.
“This would help consumers better understand when they are being given financial advice and when they are merely being supplied with general information by a product provider, for example,” he said.
Synchron Director Don Trapnell says many of the FSC proposals make sense but he is disappointed the white paper did not recognise the need to separate risk advisers from financial planners, especially in relation to education and training.
“Specialist risk advisers provide different services to financial planners,” he said. “It doesn’t make sense for them to hold the same qualifications or have to commit to the same educational program.”
Click here to access the FSC white paper.