Moves to improve standards within the financial planning industry are effectively shutting average Australian households out of advice because the measures are pushing up advisor costs.
That’s the view of Chris Kennedy, Wealth Advisory Director at Chartered Accounting and Advisory Firm William Buck, who believes an ongoing appetite for regulation is working against those it is designed to protect.
Referencing the recently introduced Future of Financial Advice (FoFA) reforms and recommendations from David Murray’s interim report on Australia’s finance system, Chris warned that a fixation on legislating to improve advisor competence was pushing advice out of reach of the average person.
“One of the things that FoFA was designed to do was make sure the ‘little guy’ would have access to advice, but what it has actually done to a degree is cut them out because the burden of the legislation has pushed up advisor costs,” he said
“It is taking advisors significantly more time to carry out all of the tasks required to comply with the regulations so seeking financial advice has become more expensive.
“Seeing an advisor post FoFA costs more money, but it still doesn’t guarantee people the security of the money they are about to invest so you have to question how effective it has been.”
Chris said the appetite for regulation of the industry was being driven by the actions of a few bad advisors, with good advisors and consumers paying the price.
“Within big institutions where there is a vertically integrated model there are conflicts, but that doesn’t reflect the industry as a whole,” he said.
“For every bad story there’s 100 good ones and we don’t need another layer of legislation to tell us how to look after our clients.
“Most financial planning practices are good practices who are already looking after their client’s best interests. They don’t need legislation to make them do that.
“This industry saves the Government a lot of money. We provide people with good advice to grow their asset base so they’re not reliant on the Government.”
Chris highlighted education, which was flagged in David Murray’s interim report as key issue for the industry, as one of the areas for focus.
“Education is important because it gives the public confidence,” he said.
“At the current time, people are qualified to give advice once they have a RG146 (regulatory guide 146) qualification. That basically means once they complete four subjects in financial planning they are qualified to give advice.
“There needs to be a higher minimum of level of education required as an industry standard. That’s where the focus should be if you want to lift the quality of advice.”
According to Chris, another area where there is the potential to lift the standard of advice is expanding the scope of audits beyond the meeting of legislative requirements.
“Every financial planning practice is audited by a third party but the audit never looks at the quality of advice, only if you are meeting the legislation,” he said.
“Auditors should be picking up on whether advisors are providing sound advice or whether that advice is wrong or conflicted.”
