InFocus: Increasing access to simpler, specific advice on the issues that matter most
Unlocking access to scalable financial advice – advice for one or more simple or specific things – could help thousands of Australians access personal financial advice for hardship withdrawal, learning more about a term deposit, redundancy or basic cashflow management at potentially the most vulnerable point in their lives.
Right now, this is virtually impossible because of expensive and excessive regulation.
The average financial advice fee per annum according to Adviser Ratings is $3,600 and the average age of a client is 55. This is because the requirements for producing comprehensive high-risk advice such as asset allocation or wealth strategies are the same for producing low-risk advice such as scalable advice given the voluminous regulations that product providers and advisers must now comply with.
The result is an advice gap with entire cohorts of Australians being priced out of receiving basic professional financial advice.
Whether you are retiring, have been made redundant, starting out with savings or engaging with your super, greater access to advice could make the difference in financial decision-making about your future. It is vital that consumers base their financial decision-making on professional financial advice that is anchored in their best interests instead of trying to do it themselves.
While no sector in the Australian economy has been spared by the downturn, the truth for the financial advice industry is that adviser departures were underway well before COVID-19. The industry continues to buckle under spiralling compliance costs and rules for which the true impact has not really been quantified except for one stark projection: just 16,000 financial advisers could be left in the industry by Christmas next year.
The Financial Services Council (FSC) wants to make first time engagements less costly. A key proposal in the FSC’s Accelerating Australia’s Economic Recovery report, is a two-year trial to make it easier to access scalable advice and less costly for businesses to provide it. Scalable advice would be documented through a record of advice (ROA) allowing clients to seek advice on a specific subject.
Despite an expectation to be concise and clear, statements of advice (SOAs) are unwieldy and often almost incomprehensible because of the legal detail. They require a substantial amount of research and in-depth fact-finds about the client as a legal requirement, the level of which offers the most value for developing strategies that service complex client needs and objectives.
This is again at considerable cost to the consumer for single-issue and in many instances first-time financial advice. Further reams of paperwork are also provided to clients in the form of the Financial Services Guide and contractual agreements. By contrast, an ROA is shorter and less formal, less costly to produce and usually provided to existing clients to confirm changes to the implementation of advice recommendations.
Such a proposal would still see consumers protected with more flexible access to world-class financial products and advice. It is a pathway to reduce the unnecessary cost, duplication and paperwork now blockading the advice system and pricing consumers out of meeting essential advice needs.
In an age of enhanced consumer protection, licensees and advisers seek a streamlined set of requirements to meet those protections more efficiently. Critical to the FSC’s proposal is our recommendation that it be monitored, and the industry work with regulators and government to demonstrate where this adds value so that it can be refined in the interests of consumers over time.
It can provide a test-case for using other tools availed by a vast regulatory net to provide services that are client-focused as well as compliance-focused.
In the worst economic crisis since the Great Depression pricing people further out of getting basic financial advice is not an option. Embracing the innovative and entrepreneurial capacity of our financial advice industry to enrich their individual decisions can support our recovery.
An Australian Securities and Investments Commission consultation paper in December 2010 noted : “Many Australians, particularly those who have never previously accessed financial advice, want piece-by-piece simple advice rather than holistic advice”.
Nearly 10 years on, the regulatory net that has resulted has left consumers stranded, not protected.
Zach Castles is policy manager (advice) at the FSC.
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