The Future of Financial Advice (FoFA) reforms could fail at one of its primary tasks if basic financial advice becomes too expensive for the average Australian.
This is the view of Andrew Waddell, director of advice and strategic development at AMP, who believes one of the unintended consequences of the new advice environment may be advisers making judgment calls on what a consumer can or can’t afford.
He added that the day-to-day nuances of FoFA, while still challenging, could at least be anticipated.
“Organisations like AMP and many of our competitors are very good at responding to regulatory change, implementing robust processes and organising ourselves to respond,” he told Professional Planner.
“My fear is that once we have done all of this, it doesn’t necessarily translate into more people engaging with a financial adviser. And if it’s more expensive for them to provide advice to consumers, this is the scoped advice element, then I think we might find more and more advisers saying, ‘Well, actually I don’t feel that I’m particularly well positioned to help you with that’ because in their minds they’re making judgments that these people can’t afford to pay them for the cost of resolving these issues.”
Better understanding of costs
“So, I really do think one of the unintended consequences of all of this change is that financial advisers may in fact become a lot more knowledgeable about the cost to serve their clients inside their own practices, and they become a lot more discerning about who they choose to engage with.”
“I am a little more concerned about the implications of change in time than the changes themselves.”
Waddell (right) argues that prevailing practice management models, which have advisers spending far more time building relationships with clients, will compound this trend.
“Over the past couple of decades, advisers have become a lot less transactional and a lot more relational in terms of offering service packages, more engagement and a deeper advice experience. Well, if there are fewer advisers and time is a constant, then they’ll have to be more discerning about where they invest their time.”
In terms of being FoFA-compliant by July 1, Waddell says AMP is on track.
“There are certain things that we still need to complete in relation to FoFA,” he said. “We’re still waiting for clarity on some elements of the legislation and that’s the same with some of the other emerging issues like MySuper and the Tax Agents Act. There are some things out there that we need to pay attention to and work through.”
“In particular, the extent of grandfathering and what about the people who are employed in practices? What sort of remuneration incentives can be offered to them? There are elements of opt in that aren’t yet clear and the position of professional associations still need some resolution to it.”
“So, it’s certain little things that we still need to address and I am confident that as clarity comes around all of these things, we’ll be able to respond to it.”
