Financial advice sector in dire state, says Rice Warner report

Transition from sales culture to a customer service proving traumatic: Rice Warner.

couple receiving financial advice

The situation in the financial advice sector is dire (and worsening), according to a report from Rice Warner. Yet the receipt of quality financial advice is seen as critical if Australians are to achieve the best quality retirement possible.

The Financial Services Council (FSC), which represents superannuation funds, life insurers and financial advisory networks, commissioned Rice Warner to report on the industry after it was rocked by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Future of Advice report proposes a raft of changes to definitions, documentation, tax deductibility and system principles.

Rice Warner says reform is needed in the sector, but described the transition from a sales culture to a customer service as traumatic.

“The number of financial advisers is falling leaving a severe shortage of practitioners,” the report says.

“Many superannuation funds have withdrawn from offering comprehensive financial advice on the grounds that they cannot do so without a financial subsidy from the fund.

“[And] the cost of delivering financial advice is rising and is much higher than most Australians can afford.”

Rice Warner proposes a financial advice model that includes:

  • all advice to be one of two categories – strategic advice and financial product advice
  • new definitions of financial advice – general information; and personal advice separated into simple personal advice, complex personal advice, and specialised advice
  • new principles to refocus the system – simplification, affordability, accessibility, consistency, and quality of advice
  • less documentation – for example, allowing a Fact Find and a Record of Advice for the provision of Simple Personal Advice
  • realistic and less costly levels of compliance
  • tax deductibility for financial advice – $500 per person per year or $1000 per couple.

Explaining further, the Financial Standard says strategic advice is used to help an individual control their finances and set a financial plan with generic products whereas financial product advice would be required to implement any strategic advice but could be provided without it.

Much of the industry did not embrace the shift from a sales-orientated model, Rice Warner notes, with many institutions holding onto high fees rather than moving consumers to contemporary products, and far too many financial advisers are continuing to focus on product sales rather than delivery of sound strategic advice.

Rice Warners says advisers are leaving the industry in record levels, with 15 per cent exiting last year and an anticipated fall of a further 36 per cent over the next five years.

FSC chief executive Sally Loane says quality financial advice is needed now more than ever as the economic effects of the pandemic are felt by individuals across the nation.

“Rice Warner’s research examines both the need for advice, and the value of advice,” she says. “It shows evident benefits of financial advice to the health and wellbeing of individual consumers, as well broader economic benefits such as reduced long-term expenditure on the Age Pension.

“The aim is to build a new model for financial advice which not only makes professional quality advice more affordable and accessible for consumers, but also removes the mass of costly compliance and regulatory burden on the sector.”

The FSC will launch a policy document in 2021.

In May, it was announced that implementation of the royal commission’s recommendations would be delayed by six months due to the pandemic.

Writing for The Guardian, Ben Butler said the effect of the commission’s report was enormous.

“The commission transformed dry financial services jargon – fees for no service, non-monetary default – into screaming headlines – charging the dead, kicking farmers off their land even though they’d made every payment.

“Billions have been paid out in compensation, and billions more will flow.”

Do you trust the financial advice industry? Do you regard financial advice as pivotal to an informed retirement?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    Winston Smith
    28th Oct 2020
    9:46am
    "Do you trust the financial advice industry?"

    No.

    Next question?
    Buggsie
    28th Oct 2020
    11:00am
    Exactly!
    Buggsie
    28th Oct 2020
    10:59am
    Another Royal Commission wasted. Whilever the financial advice industry is allowed to focus on upfront and trailing commissions on the products that they recommend and sell to their customers, nothing will change. The current LNP government ignored the Royal Commission to abolish trailing commissions and has allowed and indeed facilitated them to continue. In my experience financial advisers focus on growing their own personal wealth, not yours the customer. Many retail super funds are among the worst examples of poor or misleading financial advice.
    Garyand
    28th Oct 2020
    11:15am
    The gravy train has left and is now long gone. Unless more open and more customer based services without hidden fees and commissions they simply will not be trusted.
    Rae
    28th Oct 2020
    11:40am
    I find it pointless to take advice on Superannuation when the Federal Government can simply change the rules every budget.

    The advice I took was sound up until Hockey and Cormann decided to betray retirees.

    Now my savings and investment is outside Superannuation and I do my own research. Much safer.
    Buggsie
    28th Oct 2020
    12:56pm
    Me too. Much better off in the long run.
    Arvo
    28th Oct 2020
    3:56pm
    I totally agree that it is pointless to take financial advice when (1) the government change the rules year in year out and (2) because, financial advisors are motivated to propose investment in organisations that pay them the best commission (pecuniary benefits).
    LFC
    29th Oct 2020
    1:26pm
    I am also a victim of Government Whim and the Hockey / Cormann SxxxStorm...so much better off using external independent sources and some common sense...just cannot trust Financial Advisors or the Government.
    floss
    28th Oct 2020
    2:21pm
    I prefer to make my own mistakes much cheaper .The tone was was set by Hockey and Abbott and trust was never re established .A lot of people have lost faith in super and are prepared to blow their money and live off the pension.Greed is good in Australia and getting worse.
    Anonymous
    28th Oct 2020
    5:21pm
    Greed is rewarded, floss. Responsible living, saving and remaining as independent as possible is harshly punished. Why bother?
    Willfish
    28th Oct 2020
    2:32pm
    Trust my accountant? YES. But some change to the law now apparently means one's accountant (who has the best knowledge of one's finances) and no longer legally provide financial advice. So I now need to seek out a financial advisor. My experience so far has been a nightmare. First one wanted $3000 up front to provide me with a 'statement of advice' which I didn't ask for, and didn't want. I already have 4 of these computer generated documents (each cost me $1000 to $5000) and they just told me what I already knew. I just wanted an answer to 3 fairly simple financial questions on our SMSF. Next one wanted $2300 for the same deal. I just wanted one face to face session, and answers to my questions verbally (not a 53 page computer generated blurb of the painfully obvious that I will never read), and I will pay for their time at a reasonable hourly rate - just like every other professional providing advice. Apparently no longer possible. The gravy train for Financial Advisors is apparently in providing of the computer generated blurb, which they are all keen to push. I am still looking for a Financial Advisor who will just provide financial advice, nothing more. No annual deals, no mail outs, I don't want to be "put on your system" (at apparently great and recurring annual cost), I just want verbal financial advice.
    Surely not too much to ask!!!!
    Cosmo
    28th Oct 2020
    3:54pm
    Financial advice sector in dire straights and practitioners leaving the sector for one reason only- they have at last been exposed, found out and small investors have woken up to them so they can't get rich any more by ripping people off. Clearly the big end of town is doing very nicely however, with some government employees able to afford $118,000 for advice; only the tax payers are being ripped off there.
    If you are smart enough to accumulate enough money to need a financial adviser then at least be smart enough to learn the basics of what to do with it. An accountant can help with tax guidance, generally for less money.
    I thought lawyers at $500 an hour after doing a basic degree course were pretty exorbitant so how does a financial adviser justify $3,000 for little more time?
    Arvo
    28th Oct 2020
    4:01pm
    $500 per hour is cheap when compared to solicitors agreements to handle a case for $600 per 6 minute blocks.
    Cosmo
    28th Oct 2020
    4:32pm
    If you paid a lawyer $6,000 an hour I can only assume that you thought it was worth the outcome?
    Anonymous
    28th Oct 2020
    5:23pm
    No lawyer or financial adviser is worth the exorbitant fees they charge.
    Cosmo
    28th Oct 2020
    5:32pm
    George Pell might disagree

    28th Oct 2020
    5:25pm
    And yet we regularly hear that SFRs who are struggling should get some good advice - implying that their struggle is their own fault. I sacked my financial adviser. Simply could not justify $3500 a year for no quantifiable benefit.
    Mariner
    28th Oct 2020
    10:33pm
    See below - the charges on the Caymans are probably lower. Went to one locally a couple years ago, he said he'd have a look around to get me better deals than I had worked out. He could not but still charged me $750 for his time invested on my behalf. Bloody good job if you can get it!
    Sooty from Marketing
    28th Oct 2020
    5:32pm
    In order of trust:-
    Murdoch media.
    Financial services.
    Used car salesmen.
    Lawyers.
    Real estate agents.
    Liebral Party.
    Sooty from Marketing
    28th Oct 2020
    8:15pm
    Let me amend above post.
    In order of trust:-
    Financial services.
    Used car salesmen.
    Lawyers.
    Real estate agents.
    LMP ( Liebral Murdoch Party)
    Mariner
    28th Oct 2020
    10:28pm
    I would like to get advice from somebody working in finance on Cayman Islands. The rest is not worth anything as they do not know the tricks.
    BillW41
    30th Oct 2020
    12:02pm
    It's all guesswork! Yes, I agree with those who say it's much cheaper to do it yourself.


    You May Like