FOFA pushes advice costs up

The Government’s Future of Financial Advice reforms appear certain to drive up the cost to consumers of financial advice rather than bringing it down.

That is the bottom line of new research released today by Investment Trends, which has found that 61 per cent of planners expect to charge more for financial advice in response to the FOFA changes.

The findings are contained in Investment Trends’ soon to be released 2010 Planner Business Model Report, which is the result of a survey of more than 1,300 advisers that concluded in the middle of October.

According to Investment Trend analyst Recep Peker, the research found that the break-even cost of providing full advice was $2,700 for a typical client.

“The FOFA reforms pose a challenge to planners who are already struggling to align clients’ cost expectations to their cost of doing business,” he said.

Peker said 48 per cent of financial planners said they would not be able to service as many low balance clients if commissions on new products were banned, rising to 61 per cent if all the FOFA proposals were implemented.

“Nearly a third of planners expect to increase their upfront fees in the new environment,” he said.

“Many (planners) intend to respond to mooted reforms by focusing their efforts on higher balance clients, creating a potential vacuum for the lower balance fund member now moving into the retirement planning phase,” Peker said.

He said this was doubly concerning given that limited advice models were really in their infancy in the Australian market.