The scope and pace of reform and regulatory change in the financial advice sector has been partly responsible for the decline in the number of advisers in the sector and consumers seeking advice, according to two financial adviser associations.
Addressing a House of Representatives, Standing Committee – Economics hearing into financial advice, the Financial Planning Association (FPA) and Association of Financial Advisers (AFA) stated regulatory reform had increased the cost of advice but had also placed greater pressure on advisers to meet new standards while delivering that advice.
FPA chief executive Dante De Gori noted that while the reforms recommended by the Hayne Royal Commission were changing how financial advisers interact with clients, how they provide advice and how they are remunerated for services, it was only part of a wider range of changes.
“There are numerous other reforms, brought in by parliament, or ASIC, or licensees in response to the Royal Commission. The scale of the impact of these reforms on the profession cannot be overstated and touch almost every aspect of a financial planning business and make significant changes to how it is conducted.
AFA General Manager – Policy & Professionalism Phil Anderson said the increasing cost of advice was also of concern to his organisation given that revenue was also down for advisers who were struggling to provide cost-effective services that were still economically viable for them.
Anderson also pointed out that adviser numbers had fallen from more than 28,000 at the 1 January 2019, at the start of the reform program stemming from the Royal Commission, to current levels of 22,500.
In response to a question from Committee Chair Tim Wilson MP about whether increased costs had a direct link with a decrease in the use of financial advice, AFA board member Sam Perera said that assessment was ‘spot-on’.
He said the cost issue had been cited by around 35 per cent of people in recent surveying on issues to gaining advice and the average up-front fee was $2700 was because of the costs associated with industry levies, insurance and compliance and licensing costs.
Committee member Jason Falinski MP questioned how much of the costs of regulation was due to over-regulation and ‘dumb’ regulation to which Perera said a large part of the cost of advice related to compliance measures.
“As a practicing adviser, the large part of the delivery of that advice relates to the compliance regime and the cost of licensing, costs associated with regulatory bodies…and you can surmise there is duplication in the system which is ultimately borne by the consumer.
Responding to the same question FPA board chair Marisa Broome said the costs related to compliance under how own licence had increased ten-fold in the last few years.
“This has been mainly due to registration to various bodies, legislation and insurance costs. We have an opportunity now, due to delay in Royal Commissions reforms, to not have band-aid solutions and have more sustainable practices in place.”