The removal of the safe harbour regime and the adoption of simpler advice documents to replace Statements of Advice (SOA) could cut the costs of financial advice and the time taken to produce a financial plan by around one-third under proposed reforms put forward by the Financial Services Council (FSC).
The industry body made the claim in its “White Paper on Financial Advice”, released today, in which it called for a number of key changes that would reduce the complexity of advice and therefore the time involved in providing it, leading to lower overall costs to consumers.
These key changes include abolishing the safe harbour steps for complying with the best interests duty, as well as abolishing the complex SOA for a simpler, consumer-focused ‘Letter of Advice’.
The FSC also recommended the nexus between financial products and advice be broken and the two areas labelled as ‘general information’ and ‘personal advice’ to better distinguish them in the minds of consumers.
The council also called for the threshold under which consumers are identified as ‘retail clients’ to be raised from $2.5 million to $5 million and for it to be indexed to the consumer price index.
In making these recommendations, it pointed to analysis conducted by KPMG that stated the price of a comprehensive financial advice plan was $5334 and the first three reforms would reduce that cost by up to 37 per cent, decreasing the overall plan price to $3466.
Additionally, the reforms would also reduce the time spent on putting a plan together by 32 per cent from 23.9 hours to under 16.8 hours per client.
FSC chief executive Sally Loane said the financial advice sector had become a profession and it was time the government modernised the current regulatory framework to recognise the professional judgment of advisers.
“Current regulations prescribe compliance obligations at every step of the advice process. They are an unprecedented driver of cost for financial advisers and consumers and are past their use-by date,” Loane said.
“It is time for regulation to evolve with the profession and reflect the fact that financial advisers operate in a mature industry and are aligned with the interests of their clients.
“Our recommendations, supported by independent analysis by KPMG, delivers for advisers and consumers – not only in opportunities to reduce fees, but also through increased protections for up to 275,300 consumers who could be reclassified as retail clients and brought into the consumer protection framework.”