Expected financial planning reforms following the revelations from the banking royal commission will restrict advice to those who can afford to pay thousands of dollars in comprehensive advice fees, according to an online advice firm.
Wealthdigital technical manager Rob Lavery said regulation is not a bad thing if it achieves better outcomes for consumers.
However, it is important not to lose sight of the importance of consumers having access to financial advice, Lavery noted.
“Intra-fund advice, scaled advice and limited licensing for those advising on SMSFs are all at risk of losing their viability under the incoming reforms,” he warned.
“Under the changes to the Corporations Act that passed Parliament in February of this year, there is currently no dispensation for those providing intra-fund advice.
“This means that in order to provide advice to a client that is specific to their current super fund, an adviser will need to have a degree qualification, pass a three-to-four-hour exam, do 50 hours of CPD (continuing professional development) a year, and new advisers will need to spend a year being mentored and supervised before they can provide advice independently.”
He said it was fair to wonder why an adviser would opt for an intra-fund advice role, given the significant investment of time and money required to be able to provide advice.
“What’s more, will super funds be willing to wear the cost of employing any more than the minimum number of necessary intra-fund advisers?” he noted.
“New advisers will be even more expensive as they are effectively unable to do their job for a year.”
He said those currently providing advice under a limited licence faced the same issues as those providing intra-fund advice in that all the Financial Adviser Standards and Ethics Authority (FASEA)-administered changes will apply to them.
“This means that accountants using limited licences who wish to continue advising clients on their SMSFs will need to undertake a significant amount of further education and training on top of their normal accounting requirements,” he said, adding such requirements may act as a disincentive to those operating under a limited licence.
“They may decide the new requirements simply aren’t worth the additional time and cost.
“This will leave many clients without any guidance when it comes to their SMSF.”
Specialists are also likely to feel the pinch, according to Lavery.
“Under the current rules, advisers need only be trained and maintain knowledge in the specific areas they advise on, such as insurance, superannuation and managed funds,” he said.
“None of FASEA’s guidance to date has indicated that a similar, specialities-based training program will be in place.”
Further, he said he believes the end of specialisation will mean every financial planner will need to know about a much broader range of advice areas.
“It seems increasingly likely that a large number of planners, particularly those who specialise in insurance advice, will see the additional requirements as more than they are willing to undertake in order to continue providing advice in their narrower specialty,” he said.
“Again, this could see negative consumer outcomes. ASIC’s (Australian Securities and Investments Commission) recent report on direct, or non-intermediated life insurance, showed that the outcomes for consumers when purchasing life insurance without the help of a planner included high policy lapse rates, poor product choices and poor claims results.”
He said ultimately regulatory oversight needs to be balanced.
“It is important to both protect consumers and ensure that they have access to the right support when making important financial decisions,” he said.
“The current climate has seen a sharp focus on increasing regulation, with good reason, but it is important to not lose sight of the importance of making advice accessible to a wide range of Australians.”