The hasty introduction of reforms stemming from the Hayne royal commission are likely to further raise the cost of financial advice and increase the compliance burden for advisers, according to the Financial Planning Association (FPA).
Drawing on the findings of its 2019 member survey, the FPA found the cost of regulation and lack of time are the principal challenges facing advice practitioners and the proposed reforms released by the government could make advice more expensive if they were applied without common sense.
According to the association, 61.4 per cent of its members stated the cost of regulation was the main challenge they were dealing with compared with 54.6 per cent making that claim in 2018.
Additionally, 41.4 per cent of FPA members flagged that efforts to reduce the cost of providing advice would also be an issue, up from 25.3 per cent in 2018.
FPA chief executive Dante De Gori said there was a direct relationship between the cost of regulations, the time available to financial planners and the accessibility of advice to Australians.
De Gori noted FPA members were charging, on average, $2671 to prepare a statement of advice for new clients in 2019 compared with the 10 per cent lower figure of $2435 in 2018.
“These figures provide an important context to our submissions to Treasury regarding the royal commission recommendations,” he said.
“What our members are telling us is that the cost of regulation and time constraints have become a major issue for them and their business.
“While we broadly agree with the draft legislation on the royal commission recommendations, we do have real concerns for both the profession and consumers who we are seeking to serve.”
He pointed to a recommendation to change the biannual opt-in requirement to an annual requirement, alongside requiring consumers to annually authorise fees collected through financial products, as an issue that would increase the compliance burden on planners without addressing the issues identified by the royal commission.
“Simply replicating the existing opt-in provisions and product authorisation requirements on an annual basis is an inadequate solution to implement the recommendations made by commissioner [Kenneth] Hayne,” he said.
“Consideration needs to be given to the amount of paperwork clients are going to need to sign, the administrative burden the proposed drafting will create and the rigid time frames it will impose.”
Rather, the FPA has proposed that financial planners be able to renew ongoing fee arrangements with clients up to 90 days before the notification date without resetting the anniversary date of the agreement, and that a 12-month transition period for pre-Future of Financial Advice clients, instead of the recommended six-month period, would provide more time to review clients and manage the ongoing review process for their client base.
“There is a risk that our members, who have told us that they are already facing major time constraints, will be unable to cope with the bottleneck of client reviews in a six-month time frame,” De Gori said.
“We strongly advise government to appreciate the time financial planners require to adhere to these recommended reforms while also seeing their clients, meeting their education requirements and running their businesses.”