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“Many superannuation funds have withdrawn from offering comprehensive financial advice on the grounds that they cannot do so without a financial subsidy from the fund.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