With the industry absorbing yet another wave of regulatory change this month, it’s become clear we need a circuit breaker. The Federal Government’s upcoming Quality of Advice review will be a critical moment for the industry and for Australians. It presents the opportunity to reset the course for how financial advice is regulated and how it is delivered.
Australia requires a thriving community of highly professional and trusted advisers. Yet adviser numbers have continued to fall, not just because of the additional qualifications, increasing standards and greater scrutiny, but also because with such a complicated and regulated advice process, the economics are increasingly hard to justify.
It is in all our interests to have laws that protect and benefit consumers, and promote a professional and accountable financial advice profession. The flip side, however, is the cost of providing advice has risen significantly and, so too, the cost for Australians to receive advice, meaning fewer are actually benefitting from it. The pendulum has swung too far.
Many advisers have shown great resilience in sticking with the profession. They’ve continued to support their clients and communities through COVID, while managing enormous disruption and change for themselves and their businesses.
Advisers have signed up for additional education requirements, a new set of professional standards, they have accepted the decisions of the independent arbitrator AFCA, they are, as of this month, under the scrutiny of enhanced breach reporting requirements and from next year they will answer to a single disciplinary body for financial advisers. Despite doing some major heavy lifting to sign on for robust compliance and professional standards, the delivery of advice itself remains complicated – and laden with paperwork.
The Quality of Advice review is our opportunity to collectively implement constructive and positive change and to solve for these issues. The Financial Services Council hit the nail on the head with its White Paper, which calls for ‘best interest duty’ to be about more than ticking compliance boxes, recommends a re-work of confusing advice categories and an overhaul of the complex statement of advice process, which has long been a sticking point for advisers. With the standards setting function of FASEA moving to Treasury, there’s also an opportunity to ensure the standards for advisers are fit for purpose, and where necessary make changes, maybe even admit that in some areas they’ve gone too far and make considered decisions to wind back some requirements.
We need industry, government and regulators working together. Encouragingly, Senator Jane Hume earlier this year signalled the Quality of Advice review will consider affordability of advice, not just quality. We require reform which benefits both consumers and advisers, rather than perpetuating an unsustainable regulatory burden. The Terms of Reference for the Review should include identifying opportunities for deregulation – there is a regulatory balance that needs to be found, because we don’t have it right. There is also an opportunity for the industry to work together to come up with ideas to help reduce the unnecessary complexity in the advice process.
Australia can learn from the experience of other markets, in particular the UK, where the advice industry went through its own regulatory overhaul following the GFC. CoreData recently highlighted how the UK regulator and industry are now working more closely together to develop advice systems and processes and ensure compliance. We welcome the approach of the new ASIC Chair Joe Longo and see an opportunity to work closer with the regulator and Government to deliver much needed real and felt change for advisers and their clients.
Licensees have a pivotal role to play. It is incumbent upon us to continue to invest in technology, systems and processes that support the efficiency of advice practices, compliance, and the delivery of quality advice. Licensees are as frustrated as the financial advisers we serve, and want to drive this change, but we cannot do it without the support of government and regulators. Collaboration on policy is the key, importantly at the formation phase, not the implementation phase.
Despite all the disruption of recent years, financial advice has a strong future in Australia. But we must now collectively turn our attention to how we can support a new era of growth for face-to-face financial advice. It’s in all our interests.