Imminent Hayne reform has major ramifications for affordability of financial advice and the future of financial planning
The Financial Planning Association of Australia (FPA) has warned that the establishment of a single disciplinary body must be used to reduce red tape and untangle an unreasonably complex regulatory framework that is stifling the financial planning profession and driving up the cost of advice.
The FPA is committed to reducing the cost of advice for all Australians and has consistently called out the detrimental impact that regulatory overreach is having on financial planners and their clients.
FPA CEO Dante De Gori CFP® said the current wave of reforms sweeping through the financial planning profession are creating significant risks.
“While we welcome reforms that improves the overall standard of financial advice, financial planners and their clients are paying an unreasonably high price for it,” he said.
FPA research indicates that the average cost for a statement of advice is around $2,700. This is an increase of 10 per cent on the previous year and reflects the increased cost of operating as a financial planner in the current regulatory environment.
When asked, 41 per cent of Australians said they wanted to get financial advice.
“Yet many of them won’t proceed because of the cost or the complexity of getting that advice. Without the Government’s focus on this critical issue and the Parliament’s support, we will resign ourselves to a future in which only the wealthy can afford to access financial advice,” Mr De Gori said.
Duplication, inconsistency, and expense
The regulation of financial advice has become increasingly complex and costly. In some instances, financial planning practices – many of which are small businesses – are struggling to remain commercially viable. Others have been forced to offer their services exclusively to wealthier clients to remain in business.
“The cost of operating a financial planning practice is significant,” Mr De Gori said.
“The cost of professional indemnity insurance has skyrocketed in recent years and regulatory and compliance costs continue to rise.”
Mr De Gori said multiple inquiries have bound the profession in red tape and added layers of oversight from multiple government agencies, including the Financial Adviser Standards and Ethics Authority (‘FASEA’), Australian Securities and Investment Commission (‘ASIC’) and the Tax Practitioners Board (‘TPB’).
“In our experience, these agencies add duplication and cost to the system while rarely communicating with one another and have at times offered conflicting viewpoints and differing interpretations of important professional standards such as the Best Interest Duty (BID) requirement.
“Every agency tasked with overseeing the financial planning profession must be funded. Ultimately, they are financed by financial planning practices and their clients. Each new layer of regulation increases the cost of advice and adds further complexity.”
Consolidation, efficiency, and simplicity
The Morrison Government will soon establish a new disciplinary system and single disciplinary body for financial planners as recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
A single disciplinary body will replace the role of code monitoring bodies, which several professional associations, led by the FPA, had planned to establish under professional standards reforms.
Mr De Gori warned there is a real risk that the new single disciplinary body becomes yet another agency that financial planners must fund to continue providing advice to Australians.
“This is a major opportunity for the government to consolidate the fragmented regulatory regime and create a sustainable system that will support our growing profession,” he said.
“The single disciplinary body should have primary responsibility for government oversight of the conduct of financial planners, setting mandatory professional standards, investigating potential breaches of mandatory standards and law, and applying discipline.
“A number of these functions currently exist in other government agencies, including FASEA, ASIC and the TPB. Rather than duplicate them, the single government body should assume these functions.
A single source of truth
The FPA believes financial planners should only have to register with one government body to oversee their professional services.
“This is essential if we are to reduce the regulatory burden and create a profession that caters to the financial advice needs of all Australians, not just the wealthy,” Mr De Gori said.
“The single disciplinary body should set a single minimum entry requirement (education, experience and mentoring), a single mandatory code of ethics and other regulatory standards and be the sole investigator of potential breaches of those standards.
“This will have the benefit of being a single source of truth for the profession which will reduce red tape and regulatory cost, improve consumer outcomes, and create a single professional advice community.”