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Government should increase access to advice, not reduce it
BY EUGENE ARDINO | THURSDAY, 5 SEP 2019   2:54PM

The release of ASIC's Report 627 Financial advice: What consumers really think, highlighted that among Australians who have received professional financial advice, 89% intend to get advice again in the future. The report also revealed that almost four times as many Australians who received advice in the past 12 months had a 'great deal of trust' in their advisers compared to those people who had not received advice recently.

It was a resounding endorsement for the advice industry but one that is not reflected in the level of support it is currently receiving from the Federal Government, which is standing by while the Australian financial advice industry is experiencing death by a thousand cuts.

The other very important piece of information that Australian consumers provided in this research was that the main reason they did not obtain advice was that it was too expensive. And yet the industry is about to have a reform agenda thrust upon it that will greatly increase costs to the consumer.

The ASIC report also highlighted that advised consumers are more engaged with their financial affairs, have higher incomes and levels of education. If their interaction with advisers has improved their financial behaviour, then that is another reason to seek advice.

Either way, the government should be looking at ways to get more people into advice rather than increasing the barriers such as cost and creating trust issues by blaming advisers for things that are out of their control, such as product failures. In the absence of strong government leadership, the mainstream media has filled the vacuum and been allowed to drive the narrative on this issue.

During the royal commission, the mainstream media focused on the horror stories that mostly came out of the wealth management arms of the large institutions without making the distinction between that model and the non-institution-aligned financial planning model.

The ASIC report indicated that there was significant mistrust of financial advisers, but that it was mainly prevalent among people who had never received financial advice. The only conclusion that can be reached from this is that those people who don't trust advisers have formed that opinion from statements made by politicians and sensationalist mainstream media coverage. Actual recipients of advice remain overwhelmingly positive about their experiences with advisers.

This has had the effect of vilifying all 30,000 financial advisers in the industry when the overwhelming majority of them always act in the best interests of their clients to improve their financial circumstances.

This would indicate that the government has dropped the ball on this issue and our elected officials need to develop a better understanding of our industry before they destroy it, to the detriment of all Australian consumers.

My belief is that the negative perception of financial advisers can also be attributed to lack of understanding. As the ASIC report acknowledged: "Even limited knowledge of recent reforms (e.g. the Future of Financial Advice (FOFA) reforms or the professional standards reforms for financial advisers) appeared to improve perceptions of the financial advice industry".

To its detriment, the industry did not speak up in its own defence in the wake of the royal commission. For example, planners themselves have no control over product failures but this fact was never part of the public debate. The government has agreed to act on the recommendations of the royal commission, which were essentially motivated by public pressure to rectify the dysfunctional situations in the large financial institutions. But around half of the advisers not aligned with institutions ended up as collateral damage and by the time all the advice arms of the institutions are closed down or reduced in size, it will be many more.

These small businesspeople, who invested their own savings to build a business, and almost all of whom followed the rules to the letter, are suddenly looking down the barrel of a significant and permanent loss of income.

The recently announced legislation to remove trailing commissions from the industry has not given due weighting to the fact that commissions act as a vital funding mechanism for Australians who cannot afford to pay high fees to access financial advice.

In addition to a loss of commissions, increasing compliance, education and licensing costs are also cutting into advisers' bottom lines, with some saying that revenues will fall by 30%. Most of these costs will have to be passed on to clients.

This upheaval is forcing many advisers out of the industry. Almost 3,000 advisers - around 10% - left the industry in the first half of 2019 alone.

For those that remain, the stress is having a terrible impact. It is at the point where a few licensees actually have some of their financial advisers on a suicide watch list.

Furthermore, advisers who have successfully served their clients for 30 years or more have been told that they have to become degree qualified. Thankfully, the deadlines for completion were extended last week as a small concession.

All of this has advisers wondering what's lying in wait for them around the next bend. As Julie Bishop said in her address at the Association of Financial Advisers National Conference last week, "It's so important that politicians and regulators understand the impact of legislation". The royal commission certainly failed to recognise unintended consequences for the industry by focusing its efforts on stamping out misconduct and ignoring all other factors. The government owes it to the public to look at the broader effects of these reforms. ASIC's Report 627 provided vital information in this regard that it would be negligent to ignore, as it highlights the fact that consumers are better off with financial advisers. We need a reform agenda that enables more Australians to seek advice, not less.

8 comments so far
  

Advisers have a voice, the AFA and FPA , yet they have been anything but proactive, their lamb like obedience to the directives by government and the regulator are a shameful indictment of their incompetence and lack of understanding in just who they ultimately represent

GRAHAM HUTTON  |  9 SEP 2019   9.12AM
  

It is my understanding that without the recent introduction of "industry funding" ASIC already returns around $600million in dividends to consolidated revenue. Thus ASIC actually acts as a collector of a hidden tax rather than an industry regulator. The failure of ASIC to properly police existing legislation has been largely swept under the carpet, but in my view made a large contribution to the "flawed culture" which emerged within institutions.

Perhaps if ASIC had been permitted to use its own revenue (rather than paying "tribute") a far better conduct of regulatory action in relation to pre-existing laws (FSRA and FOFA) would have been highly likely. Rather the solution to problem is to make all advice even less affordable. Perhaps if all members of Parliament were required to sit an exam and be qualified with a relevant degree and required to always act in the best interests of their constituents, we would see some better governance?

PATRICK MCMENAMIN  |  9 SEP 2019   9.14AM
  

Great article and thankyou. It astounds me that our industry now finds ourselves in this situation. It also astounds me that these reforms that are being rammed through without any seemingly stopping and asking how average Australians will be better off as a result of these changes!

PETER JONES  |  9 SEP 2019   9.52AM
  

If any other profession had 19 times the national average of suicide rates in a 6 month period the mainstream media would be all over it. Advice is being treated as a disease to be eliminated and our politicians are the vaccinators.

When will Treasury actually cost the outcomes of no financial advice for people? How will our economy pay for it?

This is starting to look like occupational Genocide.

MELINDA HOUGHTON  |  9 SEP 2019   10.13AM
  

The lengths this country is going to in its attempts to take anything with a subjective component and tie itself in knots legislating every conceivable aspect of it to eliminate anything resembling a risk knows no bounds.

Let's say the equivalent of FOFA and the upcoming RC legislation made its way into the medical profession whereby only around 20% of productive time was spent with clients/patients and the remaining 80% on justification paperwork. GP's would find themselves spending 15 mins with a patient and then the next hour writing about what took place and what they recommended.

Assuming the GP wants to retain their income, they are now charging patients 5 times as much because they are only seeing around 20% of the patients a day they once were. And what happens to the other 80% of patients that can no longer be seen by the GP? They go off and rely on non-qualified sources for their healthcare. Sure, the legislation may have helped those 20% prepared to pay for their advice, but now the other 80% are likely to be worse off.

At some point, our politicians and legislators need some accountability as to whether their directives are in the country's overall best interests. RC's are largely a waste of time because they don't listen to a balanced view. Instead they listen to a select group of horror stories and interpret this to mean that is what is happening to everyone and legislate accordingly. If the government is unable to demonstrate legislation had the deisred result, then it should be repealed, not more and more layers added to it.

PETER H  |  9 SEP 2019   10.20AM
  

How about we suggest that all sitting politicians, ASIC staff and heads, APRA etc all have to sit an ETHICS exam. If you do not pass you cannot carry on working in your occupation you lose your entitlements and can only resit the exam every two months. PS they have to pay for it themselves!

WARREN KOTKIS  |  9 SEP 2019   12.03PM
  

The industry regulator is overseeing a train wreck. Clients need advice more than ever but the reality is that the practitioners able to provide it are largely self employed or small businesses owners. These advisers need a viable business / business model to survive and deliver the said advice. Along comes the regulator sets exam deadlines, qualification hurdles, bans remuneration, scares large portions of the the industry away and oversees a massive compliance ramp up on those that remain.

The advisers are either leaving, re-setting their prices (upwards) or letting go of low revenue clients.Tens of thousands of advice relationships are being broken. Those advisers that remain will be charging more for their advice and serving less clients than previously. The result will be that the industry will be more expensive and less accessible - exactly the opposite of what the regulator is espousing.

ALAN FRESHWATER  |  9 SEP 2019   1.00PM
  

As the AFA and the FPA are not going to represent their members,all advisers should engage Class Action Lawyers firm to represent them for a Class Action against the Federal Government of the day for loss of income and lively hood due to the enforcement of FASEA on planners that have many years of experience ,who have not broken the Law and have a long list of happy financial planning clients they are currently serving.

Planners who have done the right thing by their clients but now legislation says that these planners will have to sit and pass exams to continue in their practice even though they are well qualified to do the job.And let ASIC do their policing on the bad apples.

It would better to allow current planners to be excluded from exams.

FASEA should only apply to new or recent entrants to the industry.

Planners,let the Lawyers have their Picnic.Get some Class Action happening.

CHRIS LOW  |  17 SEP 2019   11.01AM
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