Compliance has been overtaken as the number one concern for advice practices by the climbing cost of doing business, research from CoreData has found.
The findings reveal that 26 per cent of advisers now highlight the rising cost of doing business as their primary fear, increasing from 11 per cent a year ago.
Conversely, the burden of compliance was by far the top priority last year which was cited by 21 per cent of advisers but that has decreased to 18 per cent.
Compliance became a big concern for advisers following the regulatory changes implemented due to the Hayne royal commission final report in 2019.
CoreData founder Andrew Inwood tells Professional Planner after the royal commission there was a heightened fear of breaching legislation and compliance rules.
“The compliance burden went from something that is interesting to something which was really important and took up a lot of their time, which fundamentally made businesses, particularly smaller businesses, unprofitable because they couldn’t get any scale,” Inwood says.
To resolve the disruption and fear caused by the royal commission, advice businesses had to build new systems. However, once practices made the “behavioural change”, it became normal.
Inwood says the practice of compliance has moved “from being something which you would call something really hard to do to something which is relatively easy to do”.
Inwood explains the element of trust has also returned in financial advice and with it, greater demand and higher costs.
“Trust has gone up, demand has gone up and with that business growth has gone up.”
CoreData APAC chief executive Dean Thomas says additional licensee support has played a major role in decreasing compliance as a core concern.
“We’ve seen a significant increase in advisers in satisfaction around compliance and the licensees helping support compliance within their business,” Thomas says.
He says that the level of support licensees have contributed to adviser practices has helped compliance decrease as a significant worry.
Thomas explains there are three key elements that are driving costs.
“One, cost of living pressure through price increases for staff, two, licensee fees increasing for a proportion of the market, and thirdly, the technology that enables the advisers to operate their business having an increase in fees.”
Inwood agrees that inflation is having a huge effect and suggests breaking it up “into buckets”.
“Inflation is inflation which is specific to your industry, like software or services. They’ve all gone up in price.”
A clear example of the increased cost of software is Iress’ dominant Xplan software which has recently moved to change legacy pricing arrangements to increase revenue.
Rising labour has also been an issue and despite the ‘war for talent’ in the advice profession, salaries have increased but have been overtaken by growing inflation.
“The cost of humans in the business has really gone up,” Inwood says.
“Then you’ve got general inflation, which is running through the economy, that’s up strongly as well.”
Technology has been becoming a greater expense for businesses, despite advisers using it for efficiency purposes.
Thomas explains most advisers invest in ways to increase efficiency to meet the uptick in demand for advice, including staff and technology, both of which are becoming more expensive.
“We’ve seen over the last 12 months, 25 per cent of all advisers have seen an increase in their licensee fees by almost 10 per cent,” Thomas says.
“At the same time, we’ve also seen an increase in underlying advice technology fees.”
Inwood predicts the figures will “plateau” for a while until there is a move in interest rates which could potentially happen early next year.
Advisers have little option but to prioritise rising business costs as they are converging from several directions and are difficult to combat.
In addition to rising technology, licensing and service costs, practices are also combatting the rising cost of the ASIC levy as well as the new levy to fund the Compensation Scheme of Last Resort.
In my own practice and from the thousands of conversations I had with many other practice owners over the years of having to listen to the Compliance / Audit teams droning on, trying to interpret legal mumbo jumbo that none of them had the foggiest clue as to what was REAL world quality advice and in turn, making their own interpretations that made a simple piece of quality advice, into a thesaurus of complexity no-one could understand or even attempted to read, which defeated the whole purpose of the muti-billions of dollars spent and wasted, paying Lawyers and all the associated hangers on who could see vast fortunes being made by themselves, by creating a much bigger Red Tape machine that had thousands of levers to pull, which meant of course that these sycophants could please the equally ignorant Politicians and create their own cash cows at all Australians expense.
Not once, with every audit I had to sit through, listening to these robots who clearly had never been in front of a client and could not even answer any of my questions as to the clarity of their absurd assertions around best interest advice and that what they wanted presented, was not a Statement of Advice document, it was a Legalize “Save Our Ass” door stop that made as much sense as the guy who for decades stood on a main road into Sydney wearing a sign saying, “the world is coming to an end.”
The thousands of experienced Advice Practice Owners were not concerned about the advice we produced, we were concerned about the Legalize Cr-p, passed off as an advice document, which EVERY client complained about the complex Legal jargon and the length of the documents they said they would NEVER READ, or could possibly understand.
The rising cost and complexity of providing advice was always the number ONE concern for all of us and compliance was an adjunct to that.