The Financial Advice Association Australia has called on the government to support advice practices with a $10,000 payment for hiring professional year (PY) advisers, as well as subsidising the adviser exam.
The association’s pre-budget submission, released on Wednesday morning, presented six recommendations to the government to complement the Delivering Better Financial Outcomes reforms.
The FAAA recommendations are intended to increase the supply and reduce the cost of advice and, when added to the existing measures, give Australians better access to affordable financial advice.
Headlining the recommendations was government assistance including a $10,000 payment to support for PY candidates and exam subsidies.
While completing the PY is a mandatory requirement to become a financial adviser, many small businesses cannot afford the cost and additionally face the risk of the PY candidate moving elsewhere when qualified.
“We recommend that the government provides subsidies to support PY positions, enabling advice practices to employ more PY candidates,” the submission said.
The association recommended a government payment of $10,000 to each advice practice that appoints a PY candidate, to lift the financial burden on both applicant and employer.
“If the government introduced this scheme with a cap of 1000 places and a total cost of $10,000,000 per year, that would double the new entrants to the financial advice profession each year.”
Part of this recommendation also includes subsidies to cover the steep cost of the mandatory financial adviser exam which currently costs $1500.
The cost of the adviser exam rose to that level after only being $597 when it commenced in 2019 under FASEA.
The implementation of this recommendation could foster “a steady pipeline of well-trained advisers”, according to the FAAA.
Working with the tax man
Two recommendations related to the Australian Taxation Office: better ATO portal access for advisers, as well as further tax deductions for financial advice.
“Unlike tax agents or BAS agents, financial advisers cannot currently access the essential client tax information they need to do their jobs,” the submission said.
While information about taxable income, superannuation and contributions is essential for advisers to prepare and implement financial plans for their clients, advisers face delays and costs due to having to acquire necessary information through other means such as accountants or super funds.
In its submission, the FAAA recommends the introduction of “a new, read-only class of access to the ATO portal for licensed financial advisers”.
In addition to portal access,
the association also called for enhanced tax deductibility of financial advice, after only making moderate inroads last year.
“We recommend, as a short-term measure, that the government enable initial advice with respect to an assessable income generating investment portfolio, to be treated as tax deductible,” the submission said.
Regulating the regulator
The FAAA submission also raises concerns about the high cost of the ASIC levy to financial advisers, highlighting that while advisers must fund enforcement actions regardless of outcome the corporate regulator faces no financial risk.
Regarding the ASIC levy, the association calls on the government to review and implement Treasury’s recommended changes to the ASIC Industry Funding Model before finalising the next year’s levy as the current cost is excessively high.
Additionally, the association recommends that costs for action against fraudsters should be shared across the entire financial sector as well as better transparency from ASIC.
CSLR concerns
One of the FAAA’s biggest criticisms concerns the Compensation Scheme of Last Resort.
Following the CSLR’s blowout $70 million estimate for the next financial year, the association is calling for an immediate decision on how this amount will be paid for.
The association recommends the government pick up a much greater share of the legacy claims and fix the current “unsustainable” CSLR model.
“A fairer and more sustainable model would see the costs in any one year that are above the sector cap being paid for by the government or spread more equitably across the entire financial services sector, which collectively benefits from maintaining public trust,” the submission said.
Making new friends
Finally, the association recommends the introduction of a “friend of AFCA” and “friend of CSLR” roles.
The “friend of AFCA” role would represent the advice community in cases brought to AFCA where the advice firm has become insolvent.
This is to ensure a fair and impartial representation of the advice sector in situations where no individual is able to speak on behalf of the advice given, such as when a firm goes into administration or liquidation.
“The initiative promotes accountability while reducing systemic risks associated with unrepresented claims,” the submission said.
The intention is to prevent blame being unfairly placed on the shoulders of the advice profession when the error lies with an insolvent company.
The “friend of CSLR” role would assist at times when the CSLR needs to seek recovery from firms or recovery action may be possible against the firm, directors or officers.
“The CSLR needs additional powers to undertake that activity,” the submission said.
“We also believe that they need to be separately and appropriately funded to undertake this activity to ensure those responsible for misconduct are held to account for their actions.
“We believe this role could be played by an entity established and funded by the government.”