Excessive red tape and compliance requirements are challenging the sustainability of the financial advice profession in Australia and impeding its ability to deliver affordable advice to clients. The next federal government needs to act quickly to bring hope to the profession that the huge financial burdens it faces will be lessened.
The job of advisers is important as they aim to work with clients throughout their lives – guiding and advising them through the important moments – from their first job to their first home, relationships, children and then through their retirement years.
At each of these key moments in clients’ lives, advisers enable informed decisions to be made in their clients’ best interests, giving them financial security and confidence in the future. Importantly, financial advice is no longer dominated by institutions. 92 per cent of financial advisers now work in a small business with 10 advisers or fewer, a turnaround from recent years when many were employed by large institutions. Many of these small businesses are facing excessive compliance and other fast-growing costs.
Fix the CSLR funding model
Overwhelmingly at the top of the Financial Advice Association Australia wishlist from the new government is fixing the Compensation Scheme of Last Resort. This newly established consumer compensation mechanism provides a payment of up to $150,000 if a consumer has suffered a loss due to poor financial advice, and the advice firm responsible hasn’t paid what is owed, in many cases, because the firm no longer exists.
However, the funding model for the scheme is both unfair and unsustainable. Innocent and compliant financial planners are paying for the wrongdoing of others, and the costs to the advice industry are unsustainably high. Across the next two financial years, it could be as much as $193 million, which translates to around $12,500 per adviser.
On top of this, advisers must pay other costs, including licensing, ASIC levies and professional indemnity insurance, on top of all the usual small business costs. These costs are calling into question the very sustainability of the profession, as well as forcing up the already high cost of providing financial advice to consumers.
In our submission to the recent Treasury Review of the CSLR, we made 35 recommendations to fix the flawed funding model. These include the need for insolvency reform to ensure advisers are not paying for failures in other sectors such as wholesale and general advice models, or for product failures, and the need to cap our sector’s liability for the scheme at a sustainable level.
The FAAA is asking the next federal government to take quick action to fix the CSLR as a matter of urgency.
Other reforms sought to lessen the compliance load
The Delivering Better Financial Outcomes reforms are aimed at improving the accessibility and affordability of quality financial advice. This process started just over three years ago, in March 2022, as the Quality of Advice Review, and the final report was delivered in December of that year. Since then, there have been several tranches of draft legislation.
Just a few weeks ago the Government released draft legislation for the next round of changes. We do not yet have legislation to cover critically important elements of the package including modernising the Best Interests Duty, removing the ‘tick a box’ safe harbour steps and the establishment of a proposed new class of adviser who will give simple advice with a lower level of qualifications.
The FAAA has several concerns about what we have seen so far from the draft legislation. Aspirations to significantly cut red tape and regulatory overreach by simplifying statement of advice documents don’t seem to have been achieved. Proposals for super funds to collectively charge all their members to provide financial advice on the purchase of a retirement income product for retiring members, are concerning on many levels. Young people shouldn’t be paying for retirement advice for the baby boomers. People who have paid for their own advice should not have to pay for everyone else’s.
We’re currently finalising our submission on this draft legislation, which is due on 2 May 2025. We need the next federal government to act quickly to confirm and implement sensible DBFO reforms, that will achieve the goal of improving the accessibility and affordability of quality financial advice to consumers.
Provide adviser access to the ATO portal
Luckily not all the issues we have are as complex and nuanced as those mentioned above. There are simple fixes that the new federal government can introduce to provide tangible benefits quickly. The FAAA’s third ask is to provide financial advisers with access to the ATO portal information of their clients.
Currently, advisers must collect information on important areas they need to advise clients – such as Transfer Balance Caps and Total Super Balances – manually.
Sometimes they are going to the client’s accountant for the information, or some are getting clients to come into their office and log in, so the adviser can see the information they need on screen. This is ridiculous in this day and age; it is manual, time consuming and not very cyber secure.
A Treasury consultation on this issue has recently closed, and we are looking for the next federal government to implement this change in the early days of their term.
Cut red tape
Our fourth request from the new federal government is for it to institute a razor gang to cut unnecessary red tape.
We need substantial action to rescue financial advisers from the multiple layers of red tape and onerous unnecessary regulation that are driving up the cost of advice, with no benefit to consumers. At over $4000 now, the average cost of advice is out of reach for millions of Australians who need and can benefit from it.
Grow the profession
A key reason for the high cost of financial advice is the substantial and growing demand for advice that is not being met by the low and reducing numbers of advisers.
Our fifth and final ask is for help to re-grow our profession. In the next decade around 800 people will be retiring every single day. Currently, at 15,600, our numbers have almost halved in the past six years and there is already a desperate shortage of financial advisers – even before we take this increasing demand into account. This shortage has recently been officially recognised by our inclusion on the Core Skills Occupation List.
There are many ways the federal government can help, such as approving a less prescriptive degree pathway to financial advice, supporting the employers of Professional Year candidates, and covering the cost of the national adviser exam – which at $1500 per attempt, is a deterrent to new entrants.
The Coalition has recently signalled an aspiration to re-grow the profession to 30,000 advisers, and the FAAA wants to see broad support and tangible actions taken to achieve this, by our next government.
