Compliance costs stack up
A year into the implementation of financial services reforms (FSR), planners are struggling to absorb the costs of compliance, particularly for statements of advice (SOAs), and advisers are warning they will not be able to cover these costs indefinitely.
Some planners admit to passing these costs on to clients, while others claim to be holding back — but only because of a reluctance to do it before the implementation of super choice on July 1.
Financial Planning Association (FPA) manager policy and government relations John Anning says feedback from FPA members demonstrates that SOAs “have increased costs and this is impacting on the fees they charge clients”.
“There’s an immediate cost involved in preparing an SOA or SOAA — including a staffing cost and a preparation of materials cost — and the more frequently these have to be prepared the higher the costs.”
Anning says there is a “danger that passing on these costs would price out of the market the very people who the Federal Government is trying to reach through its financial literacy campaigns”.
“Our concern is that planners will question whether they can afford to spend the time documenting advice to clients at the lower end of the financial literacy scale,” he said.
“It’s of particular concern coming into a choice environment, when a lot more people will be looking for advice, particularly around smaller amounts of superannuation.”
Jo Tuck, director of Cairns-based Menico Tuck Financial Services, says compliance costs have not yet been passed onto clients but “the time is coming when they will have to be passed on”.
Tuck said compliance costs, which included employing more staff to service clients to the same level as pre-FSR, had already “forced some changes to our commissions structure”.
She said increasing costs meant Menico Tuck was now “carrying some clients, because in a small city like Cairns you don’t want to be telling clients you can’t service them because they’re not worth it”.
“However, we are looking closer and closer at these clients, as you can’t run a business and make a loss.”
David Haintz, managing director and senior financial planner of Melbourne’s Haintz Financial Services, said the upshot of FSR is that there is “now effectively a barrier to entry to get financial advice”.
Haintz said the cost involved in delivering advice to clients has risen because of the “amount of work we have to do to comply”.
“As a result, we can’t give advice to anyone with a heartbeat anymore; it needs to be somebody who has the ability to pay the fees.”
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