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The release of their consultation paper on access to affordable advice is an encouraging sign that ASIC are taking this matter seriously. In its Policy Platform released last year, the FPA showed how committed we are in putting affordable advice at the centre of our policy efforts over the next five years.
In the same year Investment Trends reported that 38% of potential financial planner clients prefer piece-by- piece advice models compared with 20% preferring comprehensive advice. This bears out ASIC’s own research findings from their 2010 report Access to financial advice in Australia that limited advice would be a popular choice with consumers, if it were available.
This is why much of CP 332 is focused on issues with providing scaled – or limited – advice, including feedback on regulatory guidance from ASIC on this type of advice. The paper also invites comments on whether digital channels are a good way to provide good-quality limited advice plus any other matters relating to the delivery of both affordable personal advice and limited advice.
Cost of Advice: FPA recommendations
In this consultation paper ASIC say “we want to help industry increase the availability of good- quality affordable personal advice that meets consumers’ needs.” This is a goal the FPA has put front and centre in our Policy Platform, Affordable Advice, Sustainable Profession. Section Five of this document includes five policy recommendations with the specific intent of reducing the cost of advice for consumers.
5.1 Ability to buy the advice you want Regulatory guidance, including model Statements of Advice, should be provided to clearly articulate the circumstances in which a financial planner can provide advice on a limited scope engagement, with the aim of providing consumers with more options for how they receive affordable financial advice.
5.2 Small investment advice
The law establishing ‘small investment advice’ should be changed to increase the threshold and allow for the provision of advice on superannuation. At a minimum, the threshold should allow for advice up to $50,000 per person to cover voluntary concessional superannuation contributions and similar minor investments. A method of indexing the threshold may be appropriate to ensure it remains aligned with contemporary values.
5.3 Tax deductibility of advice
All financial advice should have tax deductible status, regardless of what stage of the financial advice process it is provided and whether it directly relates to the creation of investment income.
5.4 Fees from superannuation
A single set of rules should apply to all superannuation accounts which allow the payment of fees for financial advice with appropriate requirements for renewal notices, disclosure and authorisation of fees.
5.5 Insurance advice fees
The Life Insurance Framework should continue to allow consumers to choose how to pay for their life insurance advice.
FPA Submission in response to CP332
Only the first of these recommendations relates to the provision of limited advice and this was included in the FPA’s recent submission in response to CP 332. However, we also provided ASIC with feedback from our members on a number of other matters we believe have a significant impact on access to, and affordability of, advice.
Simplifying regulation of financial advice
Enabling everyday Australians to access the advice they seek for a fair fee isn’t just about making it easier for financial planners to deliver limited advice. From our members’ perspective, achieving regulatory compliance is a large component of the cost of providing advice, regardless of the type of advice being offered. This is why our submission also highlights a number of other recommendations from the Policy Platform relating to the regulation of financial advice:
1.1 Single disciplinary body
A single government body should be responsible for overseeing financial planners, including setting mandatory entry, professional standards, investigating breaches of mandatory professional standards and other legal requirements, and conducting disciplinary proceedings.
1.4 Single set of professional standards
A single set of mandatory professional standards should apply to financial planners and these standards should be maintained and enforced by the single disciplinary body.
Taking up these recommendations and simplifying the regulatory regime can potentially bring significant savings in the fees financial planners pay to various regulators as well as appropriately streamlining the regulation required to deliver advice. This effort to reduce duplication and overlap in regulation could be expected to lead to further costs savings for financial planners, which could then be passed on to their clients.
Structure of the financial planning profession
Feedback from FPA members also highlights an issue with compliance requirements being mediated by licensees. Many members see the compliance approach taken by their licensee as conservative and prescriptive. This is understandable given recent high-profile breaches in financial advice and how they have affected the reputation of the profession as a whole. However, many members believe that licensee requirements are, at times, impractical, and limit their ability to exercise their professional judgement and deliver financial advice in a manner that was more efficient and affordable for their clients. These requirements can result in significant delays in financial planners being able to provide an SOA as well as restricting their capacity to deliver advice in a more consumer-focused way.
Finding a method of serving clients that addresses their needs while still complying with relevant regulation is critical to the future of financial planning. This would best be achieved by giving financial planners more control over how they deliver their advice and allowing them to be more responsive to both clients and regulators.
This is why the FPA has also included the following recommendation from our Policy Platform in our submission to ASIC:
3.3 Future of licensees
The law should be changed to focus the AFSL system on the regulation of financial products and remove the requirement for an AFSL to cover the provision of financial advice.
A change in licensing would give financial planners a greater degree of flexibility in how they service their clients and allow licensees to focus on providing support services to financial planners.
This consultation paper from ASIC is an important step towards industry and the regulator making progress on policy changes that will best serve consumer interests, including access to high-quality, appropriate and affordable advice.