The Financial Advice Association is bracing for more increases in the cost of advice – despite that outcome running contrary to the government’s stated intention if recent regulatory reforms.
In a media briefing in Sydney on Wednesday, the association blamed the slow passage of these reforms, an anticipated increase in regulatory cost recoveries and the loss of the Reduced Input Tax Credit for advice in super for driving up the cost of advice – and the government is responsible for all these outcomes.
Changes to the RITC arrangements, which kick in next week at the start of the new financial year, end the 75 per cent GST discount on advice fees collected through a fund or platform.
“Numbers that have been publicly release suggest this could cost financial advice clients another $250 million per year simply by removing the funds’ ability to [claim] the RITC credit,” FAAA general manager for policy Phil Anderson said.
“It just seems strange the government is doing that at the same time they are talking about reducing the cost of financial advice.”
The latest ASIC Cost Recovery Implementation Statement is expected to be released soon and Anderson said “we’re not optimistic” it will show a reduction in costs.
“None of the messages coming out of ASIC suggest that would be the case and we’re worried from what the budget announcement said that the cost for the financial advice sector could even increase the following year,” Anderson said.
“We would certainly expect there should have been room for reduction because we have so many less advisers and we put so much effort into raising standards. Why couldn’t efficiencies be achieved through that?”
Minister for Financial Services Stephen Jones campaigned heavily on reducing red tape and the cost of advice, and had touted his response to the Quality of Advice Review – the Delivering Better Financial Outcomes package – would create a positive impact in that respect.
Anderson noted the DBFO legislation was tabled in the Senate on Monday, which could help mitigate some of the cost of advice should it pass, but noted that if it doesn’t pass by next week the next sitting opportunity won’t be until August.
“The big contentious issue has been 99FA,” Anderson said of the bill, referring to the controversy over the wording in the DBFO bill for how advice fees may be deducted from super funds, which will remain as-is despite fierce criticism from the industry and federal opposition.
“Whilst it’s not impossible for change to happen, it would now seem quite unlikely,” Anderson said.
“We would prefer that issue is fixed but we want the bill to be passed as well. The sooner the bill is passed, the sooner some of the benefits can come into play.”
Those benefits for the industry include the streamlining of fee consent into a single mandated form and allowing more flexibility for how financial services guides are provided.
The cost of Dixon
The fallout over Dixon Advisory has increased the cost of advice further, due to the profession covering the cost of client remediation through the Compensation Scheme of Last Resort.
Dixon was ruled an advice failing by the Australian Financial Complaints Authority, allowing victims to claim compensation through the external dispute resolution service, but since Dixon entered voluntary administration those claims have shifted to the CSLR.
ASIC told the Senate Economics Committee it would not pursue individual issues for misconduct and that it also couldn’t pursue legal action against Dixon parent company Evans & Partners.
AFCA had told the same committee that more than 2500 claims against Dixon have been made, estimated to be worth more than $450 million, but are yet to be vetted.
The FAAA noted one Dixon director is still being pursued by the regulator and it has been assured those costs will not fall on the advice sector as it is a corporate matter related to directors’ duties.
“I do get the sense ASIC have closed the book on Dixon Advisory,” Anderson said.
“We would very much ask the question as to whether they should be re-opening those books to have a look at how it was that business model was allowed to operate and so many clients were pushed into their in-house products in the way they were.”
Anderson said the association has kept a strong focus on Dixon, not just due to the implications for the CSLR but to avoid something similar happening in the future – and has called for a public inquiry into the failed advisory network.
“We need to understand what needs to be done to ensure something like this could not happen again and that the CSLR is a sustainable solution going forward,” Anderson said.
“We think there should be a public inquiry into this. This is such a big scandal, there was so much money that has been lost, so many clients impacted, it’s worthy of a public inquiry to understand what happened.”
Marketing the profession
To boost numbers of individuals in the profession, FAAA chief executive Sarah Abood said the association is launching two initiatives that will target new entrants, be they students or career changers; and is launching an advertising campaign to specifically promote financial advice as a career.
“We haven’t been in market, in probably forever, talking about why should consider financial planning as a career,” Abood said.
The association is concerned about the viability of the financial planning degree courses currently offered by universities, as well as the lack of relevant degrees from the ‘group of eight’ sandstone universities.
The FAAA recently suggested to Professional Planner that making ‘qualified advisers’ complete a graduate certificate would mean they would only need to complete another four units to gain an approved qualification.
But Abood also noted members have raised the question over whether practices can hire qualified advisers, and that it won’t be only banks, super funds and insurers allowed to.
“We did seek clarification from the minister that there was no impediment to existing AFSLs employing them and the minister’s response was that he saw no reason why that shouldn’t be the case, if they otherwise met their requirements,” Abood said.
“Members are seeing that as a way they can engage with children and grandchildren of their existing clients.”
However, Abood noted members have raised the issue of how qualified adviser charging arrangements would work, something the government didn’t make clear during the announcement of the full reforms package last December, other than the stating they will be prohibited from charging a fee for service or receiving a commission.
“The cost is likely to be substantially less than the cost of a full professional adviser, but nevertheless there aren’t very many practices that are big enough or [have] big enough margins that can offer that service for free,” Abood said.
“It has been an advocacy point for us in the current round of consultations that there should be no restrictions on charging. We would argue that it’s not a level playing if small firms aren’t allowed to charge for it.”
Abood reiterated her comments from the FAAA Roadshow in May that the association would canvass member views over whether ‘qualified advisers’ could be eligible as members, but Anderson noted the benefit of having more advisers to pay for other cost recovery mechanisms.
“There are a few members who would like to see a broader share of contribution to the ASIC funding levy and the CSLR [levy],” Anderson said.
