Rejigged research spruiks antidote to alarmists

While the lack of a regulatory impact statement has remained a sticking point for an industry facing fundamental reform, updated research released this week argues that it is the only credible report on the proposed changes.

A revised and updated report by Rice Warner Actuaries on the Future of Financial Advice (FoFA) reforms has taken a rosier view of the landscape ahead than its 2010 predecessor, especially on the controversial subject of job cuts.

The report, commissioned by the Industry Super Network, concludes that financial adviser numbers will remain broadly stable and that incomes for financial planners will continue to rise following the reforms.

This is in stark contrast to the earlier version of the same report, which concluded 6800 were at risk and formed the basis for speculation that between 25,000 and 30,000 jobs in total could be shed.

Calling the reforms “a win for consumers and financial services industry”, the research anticipates the new legislation will boost the provision of financial advice in Australia by more than 100 per cent and increase the superannuation and other savings of individuals by an estimated $130 billion by 2026.

Matt Linden, chief policy advisor, Industry Super Network, said that the research provides a useful counterweight to what he called “alarmist claims” being made by the financial planning industry.

““The Rice Warner report is the only credible research conducted to date that investigates the impact of these reforms on the financial services industry and consumers. Based on sound methodology, the report clearly demonstrates consumers and the industry will benefit from these reforms,” he said.

“In fact, all the indicators point to a vibrant and innovative financial services industry in future, which will be driven in part by compulsory superannuation.

“The expected large increase in scaled advice will also challenge the best and brightest in the industry to forge new business opportunities.”

However, chief executive officer of the Association of Financial Advisers (AFA) Richard Klipin questioned the robustness of the new data, the independence of the research and the timing of its release.

Klipin was amongst those to warn the recent Joint Committee on Corporations and Financial Services that 6800 adviser jobs are at risk and, using a an employment multiplier of between four and five,  a total of over 30,000 jobs in total.

He again called on the government to produce a regulatory impact statement based on independent research.

Employment multipliers are difficult to predict but some commentators have suggested that for the Australian financial sector this may be closer to 1.5 than four.

The Rice Warner Actuaries report indicates that the reforms will result in numerous benefits to consumers, the financial planning industry and national savings.

Predictions from the report include:

• The provision of financial advice will increase from 831,000 pieces of advice being delivered to 1.77 million pieces of advice in 2026 – an increase of more than 100 per cent;
• This will be driven by an increase in the provision of scaled advice by more than six-fold – from 169,000 to 1.1 million pieces of advice in 2026;
• Superannuation and other savings by individuals are estimated to increase by around $130 billion by 2026;
• This will flow from an increase in contributions (under advice) and the redirection of fees into savings;
• The cost of financial advice is anticipated to reduce, with the weighted average cost falling by around 44 per cent, from $2,135 in 2011-12 to $1,188 in 2025-26;
• Adviser numbers will remain broadly stable, with the most significant change being the proportion providing full service and scaled advice; and
• Average adviser incomes are expected to grow strongly in real terms, from $182,000 per annum to $260,000 in 2026 (after inflation and in today’s figures).