Financial advice sector in dire state, says Rice Warner report

Font Size:

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“Many superannuation funds have withdrawn from offering comprehensive financial advice on the grounds that they cannot do so without a financial subsidy from the fund.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

How to close an account and stop fees mounting up

Can a bank insist that you visit a branch in order to close an account?

Tax cuts good news for rich men

Expert modelling shows for every dollar women get, men would get $2.19.

What is a government bond? How do they work?

Even bond traders find it hard to get a handle on what bonds are.

Written by Will Brodie



SPONSORED LINKS

Sign-up to the YourLifeChoices Enewsletter

continue reading

Health

How to boost your gut health and immune system this winter

A healthy gut is key for overall health, and affects so much more than just our digestion. With links to...

Lifestyle

Things people who grew up in the '70s will remember

If your childhood or teen years happened to fall in the 1970s, you probably have a lot of fond memories...

Food and Recipes

The favourites that send food lovers pie-eyed

Pies, pies, pies. For some of us it's the flaky pastry and gooey filling. For others, it's the firm shortcrust...

Health

How much of a risk are microplastics?

Perhaps you've seen headlines saying we consume a credit card's worth of microplastics a week, or that microplastics have been...

Lifestyle

Friends, family and Aunty Maud

Columnist Peter Leith has always been one to take time to talk, lobby and observe. In this true short story,...

Podcast

Podcast with leading Melbourne podiatrist

They take you thousands of kilometres, but we probably look after our car tyres better than we look after our...

Australia

Travel SOS: When will cruising restart in Australia?

With the travel bubble between Australia and New Zealand set to reopen, will we see cruising restart earlier than expected?...

Travel

Air New Zealand's blueprint for post-COVID travel

Air New Zealand's trial a digital health pass on flights to Australia could be the blueprint for future digital 'vaccine...

LOADING MORE ARTICLE...