Financial advice so frustratingly out of reach

On Monday, the Financial Services Council (FSC) unveiled a plan to reduce the costs of financial advice. The peak body for Australia’s $3 trillion financial services sector kicked off the debate over the financial advice laws which was introduced by the former Labor government. 

The Future of Financial Advice (FOFA) laws was designed to protect consumers from financial planning fraud and came into effect in June 2012. However, it placed too many restrictions on advisers, forced a quarter of advisers to exit the industry in just 2 years and pushed up barriers to entry. Advisers are dealing with challenges to offer new standards and protections for consumers without charging their clients much more in fees. 

The law resulted in excessive and expensive documentation, with statements of advice sometimes running to as long as 80 pages and at a cost of $2400-$3000 each. First off – that’s properly expensive. Most Australians aren’t willing to pay thousands of dollars for financial advice unless they inherit a great fortune to help pay for it. The median fees is pushed up 16% in a year to $3256. This means the industry is unable to meet the demand of low and middle-income Australians who cannot afford financial advice. 

The cost of regulation and time constraints have become a major issue for financial planners and their business. 

It’s a real eye-opener about the difference between plugging rules into the system and actually solving problems – the things that are totally justifiable in the moment, but turns out it could put advice out of reach for a large proportion of Australians and push the entire industry near crisis point. 

A total of 2837 financial advisers exited the industry in 2020. And the number of advisers is expected to fall to 13,000 by the end of 2023, half the number operating before the Hayne Royal Commission. 

FSC chief executive Sally Loane said their aim is to lower the cost of financial advice without undermining the quality of advice or eroding important consumer protections. 

“The financial advice industry is facing significant challenges, with rising regulatory requirements and cost pressures undermining the economics of the sector,” Ms Loane said.

The regulatory overhaul aims to stop the high and rising fees, lower the cost of quality financial planning, boost the supply and clean out shonky advisers who don’t operate in clients’ best interests. 

This call to free advisers from burdens of legislation is similar to the calls from banks to remove unnecessary paperwork imposed by the Responsible Lending Laws. These calls encouraged the government to draw up a bill to reduce the Australian Securities and Investment Commission’s influence over the banking sector.

FSC wants the 7 “safe harbour steps" in the 2012 FOFA reforms to be completely dumped and suggests the code of ethics introduced by the Morrison government is enough to ensure practitioners abide by their fiduciary duty. It called for submissions on its green paper