Treasury urged to be practical on Hayne reforms as financial advice is pushed out of reach
The Financial Planning Association of Australia (FPA) has warned the federal government that overly complex reforms don’t help consumers and only serve to make financial advice more expensive and difficult to access.
Financial advice is already unaffordable for many Australians and the Hayne reforms could make this worse if they are applied without common sense.
The cost of regulation and lack of time are the biggest challenges for members, according to the latest FPA member survey for 2019.
The majority (61.4%) of FPA members agree that the cost of regulation is the main challenge they are currently dealing with, up from 54.6 per cent in 2018.
Dante De Gori CFP®, CEO of the FPA, said there is a direct relationship between the rising cost of regulation, time constraints on financial planners and the ability of Australians to access advice.
“In 2019, 41.4 per cent of our members said reducing the cost of providing advice would be a major challenge, up significantly from 25.3 per cent in 2018,” he said.
On average, FPA members charge $2,671 to prepare a Statement of Advice (SOA) for new clients, up almost 10 per cent from $2,435 in 2018.
“These figures provide an important context to our submissions to Treasury regarding the Royal Commission recommendations,” Mr De Gori said.
“What our members are telling us is that the cost of regulation and time constraints have become a major issue for them and their business. While we broadly agree with the draft legislation on the Royal Commission recommendations, we do have real concerns for both the profession and consumers who we are seeking to serve.”
Ongoing fee arrangements
Recommendation 2.1 changes the biannual opt-in requirement to an annual requirement, adds additional elements to the FDS framework, and requires consumers to annually authorise fees collected through financial products.
While the FPA in principle supports these recommendations, the FPA has highlighted several practical concerns with the proposed implementation of these standards.
“Simply replicating the existing opt-in provisions and product authorisation requirements on an annual basis is an inadequate solution to implement the recommendations made by Commissioner Hayne. Consideration needs to be given to the amount of paperwork clients are going to need to sign, the administrative burden the proposed drafting will create, and the rigid time frames it will impose.”
The FPA has recommended that financial planners are able to renew ongoing fee arrangements with their clients up to 90 days before the notification date without resetting the anniversary date of the agreement. The FPA has additionally pointed out that a 12-month transition period for pre-FoFA clients (rather than the recommended six-month transition period) would give financial planners more time to review their clients and better manage the ongoing review process for their client base.
“There is a risk that our members, who have told us that they are already facing major time constraints, will be unable to cope with the bottleneck of client reviews in a six-month timeframe,” De Gori said.
“We strongly advise government to appreciate the time financial planners require to adhere to these recommended reforms while also seeing their clients, meeting their education requirements and running their businesses.”
Advice fees in super
The Government has released draft legislation to stop Australians paying for financial advice from their MySuper account. The FPA opposes this move as it will create two classes of superannuation and take away the ability for consumers to choose where they get advice and how they pay for it.
“It is incorrect to say that people with MySuper are disengaged and do not require advice,” Mr De Gori said.
“Many people choose to stay in a MySuper investment option because it is the right one for them and they have the same need for financial advice on their superannuation, insurance needs and retirement planning,” he said.
“Stopping the payment of advice fees from MySuper investment options will disadvantage many Australians who currently use this arrangement to access affordable advice from their choice of financial planner.”
Recommendation 2.7 will establish a compulsory scheme for checking references for prospective financial planners. This is modelled on the existing ABA Reference Checking Protocol.
While the FPA supports this recommendation, we believe reference checking should be extended beyond financial planners.
“This recommendation will support the growth of the profession by preventing bad apples from moving around the industry,” Mr De Gori said.
“However, there is a risk that those who don’t provide financial planning services but have influence over the financial planning process can move freely around the sector. To prevent this from happening, the FPA is recommending that reference checking is broadened to include those in managerial and supervisory roles, including directors and responsible managers.”
Breach reporting, investigation and remediation
Recommendations 2.8 and 7.2 will strengthen breach reporting requirements for Australian financial services licensees.
Recommendation 2.9 will require Australian financial services licensees to investigate misconduct by financial planners and appropriately remediate clients affected by the misconduct.
The FPA supports these recommendations but believes they can be simplified to reduce the administrative burden on financial planners.
“The recommendation to strengthen breach reporting effectually creatives two regimes; one for breaches before 1 April 2021 and one for breaches after that date,” Mr De Gori explained.
“Treasury has designed a very complex process. We believe that a single regime would simplify this by removing the transition arrangements, which would still provide adequate breach reporting requirements in the spirit of Commissioner Hayne’s recommendation.”
Disclosure of Non-Independence
The Government has released draft legislation to require entities (a financial services licensee or authorised representative) who are authorised to provide personal advice to a retail client to disclose in writing to the client where they are not independent and why that is so (recommendation 2.2).
“The FPA has for many years advocated for clear labelling of financial advice services to better protect consumers and ensure consumers are clear on who they are purchasing advice services through,” Mr De Gori said.
“The FPA supports the current definition of independent contained in the Corporations Act as an important consumer protection mechanism, along with the protection of the terms Financial Planner and Financial Adviser. For this reason, the FPA supports the proposal to add a disclosure to the financial services guide (FSG) obligations.”
FPA members unite
Mr De Gori said the Royal Commission recommendations and draft legislation had triggered unprecedented levels of engagement from FPA members across the nation.
“Our new community forum has been instrumental in bringing members together to help shape our policy positions on the critical issues that will reshape the future of the financial planning profession,” he said.
“On behalf of the FPA I would like to thank all of our members for reaching out to their local MPs and being actively engaged in this process. With your support, the FPA is committed to driving positive change in the profession.”