There’s a saying, ‘a camel is a horse designed by a committee’. The regulatory framework for professional advice in Australia is that camel.
New CPA Australia research ‘The Value of Advice’ conducted in conjunction with research house CoreData, shows our economy could be hundreds of billions of dollars better off each year if more people received professional advice. Individuals, meanwhile, could increase their annual income by 30.6% on average.
The benefits of professional advice extend well beyond money. As part of our research, we surveyed 1,244 consumers and 815 small and medium enterprises (SMEs). Respondents reported benefits in almost every aspect of their lives from receiving financial advice, including physical and mental health, family and social relationships and work satisfaction.
Yet most Australians (over 60 per cent of the population) don’t receive professional advice –why? Coincidentally, ASIC has just begun consulting with the finance industry on the same question – what’s stopping people from accessing good-quality, affordable advice?
‘Professional advice’ covers a spectrum of services, including; accounting, taxation, financial planning, business management, estate planning and mortgage broking. Each service can play an important role in helping Australians manage their personal and business finances.
Consumers’ confidence in financial planning advice has been damaged by events such as the banking Royal Commission. These have cast a long shadow over other forms of professional advice. Our survey revealed a pervasive uncertainty about who to trust for help with their finances among consumers and small and medium enterprises (SMEs).
Legislators and regulators have likewise taken their cue from instances of misconduct in financial services. In the name of consumer protection, they have imposed often overlapping and sometimes conflicting requirements on professional advisers.
This approach has delivered a reactionary rather than responsive (based on consumers’ needs) regulatory framework, to which consumers have been retrofitted. This is the camel and people aren’t riding it.
CPA Australia’s research provides proof in point. We found that if all Australians were advised, the economic uplift could be more than $630 billion each year. It goes without saying that a fully advised population is unrealistic. But even a 10% increase on current advice levels could contribute an additional $112.8 billion to the economy annually.
These figures are based on a macroeconomic model which measures income risk now and in a scenario where professional advice is properly implemented. The gap is expressed in dollar terms to demonstrate the value of professional advice.
Despite the potential benefits, consumers are choosing to ‘go it alone’ when it comes to managing their finances. This do it yourself approach makes more sense when we consider what consumers and SMEs want from professional advice and what we make them go through to get it.
All consumers have advice needs, although they vary depending on life stage. Assistance with filing a tax return, budgeting for a house deposit, identifying a mortgage product, tidying up estate finances or planning for retirement – these are common examples.
Consumers regard these as functional tasks and expect to get the answers from one qualified adviser. This is very different to the way the regulatory framework is constructed. As it stands, the examples listed above may require the services of three or more advisers.
It’s worse for business owners who have the added complexity of managing personal and business affairs. During the life of their business, they can expect to need professional assistance with corporate structure, debt financing, government support, PAYG and superannuation contributions, business valuation, solvency, and more.
Many accountants have the skills to provide all these services. But to do so, they’d have to hold multiple registrations with different regulators and meet numerous other requirements. Some do, but many don’t, and growing numbers are relinquishing their multiple registrations. Our research shows most consumers and SMEs aren’t interested in navigating this complex framework either.
CPA Australia is advocating for the development of a client-centric model of professional advice. There’s nothing especially new in this. The best interests duty, product design obligations and other regulatory reforms have all purported to put the consumer first. But it’s a committee’s perspective on what’s needed – with little regard for how consumers actually use advice.
Instead of saying to consumers “let us tell you what you need” it’s time we created what consumers want. The current model is deterring consumers from seeking professional advice – and it’s costing individuals and the economy dearly.
Dr Jane Rennie is general manager external affairs, policy and advocacy at CPA Australia.
