Tackling the high cost of advice

The high cost of financial advice along with the personal savings and life underinsurance crises continue to be prominent issues on the Association of Financial Advisers (AFA) agenda.

At the start of 2007, the AFA announced its strategic plan, emphasising its role in speaking directly to consumers about broad financial advice issues and restating its campaign to get Australians to save 15 per cent of their income for retirement.

AFA chief executive Richard Klipin called on the Government earlier in the year to follow up on its ‘better super’ initiative by addressing these recurring issues.

“The only way to self-fund serious retirement levels is to mandate higher superannuation contributions for working Australians. Industry and the Government know that current superannuation levels will fail Australians in their retirement … the Government must take the lead in getting savings levels higher via greater annual superannuation contributions,” he said.

The AFA continued its push for further changes to the Financial Services Reform regulations to enable Australians to have greater access to financial advice.

According to Klipin, although the 2007 ‘better super’ reforms were welcomed by the AFA, the associated compliance costs have driven the affordability of professional advice well beyond the reach of many Australians.

“The cost of putting together a 60-page document, for example, means that advisers are now dealing with mainly high-net-worth clients. As a result, mainstream clients miss out altogether or get very general advice.

“What we need is streamlined documents, a simplified advice process and guidance, so that advisers and clients are confident in the outcomes.”

“The AFA has been active in working with the Government, the regulator and industry to get this message through.”

While Australia’s chronic underinsurance was again on the minds of many in the industry, Klipin said there were concerted efforts made in 2007 towards change.

“The industry is very focused on the issue of underinsurance and its part in advice. The product providers have been working hard to build and innovate in the product field so consumers get better outcomes.”

Klipin said the AFA believes that awareness of Australia’s underinsurance must become a national issue and believes that minimum insurance levels, subject to underwriting, should be in the vicinity of at least $300,000 to $400,000.

To get the message across, the AFA has launched the AFA Educational Framework, which looks at professionalism and educational standards for the industry.

“The educational framework for advisers is currently under review. The FSR introduction of PS 146 was a start, but advisers need to adopt a lifelong approach to learning. The AFA is calling for a balance of technical skills (which constantly need to be updated) with client engagement skills,” Klipin said.

“Through the framework we will be launching our post nominal pathways to Fellow Chartered Financial Practitioner (FcHfp) in early 2008.”

— Justin Lim