Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Associations band together to reset advice regulation
The Quality of Advice Review combined with the Australian Law Reform Commission’s detailed analysis of the ongoing appropriateness of the Corporations Act in regulating financial product advice are offering some hope for the under-pressure advice industry.
As submissions were released this week, they were accompanied with commentary from several industry leaders about the massive burden and challenges being place on advisers via overly prescriptive and punitive legislation. One such voice came from Sarah Abood, CEO of the Financial Planning Association, who suggests many advisers were ‘in tears’ trying to deal with end of financial year compliance issues.
Abood was referring to the fact that every client must have received a Fee Disclosure Statement and Opt-In Consent for any accounts through which the adviser is being paid. The issue, of course, is that every individual platform has its own unique requirements, there is no standardised or template document that is accepted by all and most concerning, these are the same fees that have been disclosed as many as seven times to the client already.
It was no doubt refreshing then to see that the majority of institutions serving the financial advice profession were able to band together and submit their own submission; known as the Joint Associations Working Group (JAWGH). These groups combined represent 90 per cent of advisers from the following memberships:
- Association of Financial Advisers (AFA)
- Boutique Financial Planning Principals Association Inc. (BFP)
- Chartered Accountants Australia and New Zealand (CA ANZ)
- CPA Australia
- Financial Planning Association (FPA)
- Financial Services Council (FSC)
- Financial Services Institute of Australasia (FINSIA)
- Institute of Public Accountants (IPA)
- Licensee Leadership Forum (LLF)
- Self Managed Super Fund Association (SMSFA)
- Stockbrokers and Investment Advisers Association (SIAA)
- The Advisers Association Ltd (TAA)
The joint submission was focused on five key areas, being the need for regulation to be Consumer Focused, to Recognise Professionalism, to provide Regulatory Certainty, ensure access to Open Data and Innovation and most importantly support the Sustainability of the industry.
The submission highlighted the challenge facing advisers in light of the fact that “the government and regulators, until recently, appear to have taken the view that financial advice should remain a highly regulated environment that relies on black letter law, legislative instruments and regulatory guidelines.”
The result is that “this has led to a complex, inconsistent, costly and difficult to comply with environment with licensees and advisers being very fearful of making even the most minor error.”
The submission was separated into ‘quick wins’ for the industry and longer term opportunities with the focus here being on the former, with the following proposals being approved by all.
The first was to “re-work consumer facing advice documentation to ensure they result in advice that is meaningful and understood by the individual consumer.” Extending this they propose to ensure the legislation provides “for consumer focused-advice documentation” that doesn’t repeatedly mention the same scope of work.
The safe harbour steps should be removed, according to the proposal, with greater legislative framework offered to provide comfort and guidance on the provision of shorter SOAs and the level of data that must be collected in order to provide certain types of advice. Extending this, they seek more clarity around the types and requirements for the inclusion of alternative assets or strategies which can be endless.
Among the most profound changes, and one that is clearly gaining traction is the proposal to “amend or repeal the legislation and relevant legislative instruments to enable rationalisation, standardisation and automation, of the Annual Renewal and Consent and FDS requirements”. The automation of this task is likely key to the future efficiency and cost effectiveness of the industry.
All shared the view that third party data collection for all financial products should be standardised, rather than the labrynth of differing application and similar forms, while advisers should be offered access to the ATO portal as a matter of priority.
Finally, they are seeking to “develop a profession-wide position on the tax deductibility of initial and ongoing advice fees”. This likely bodes well for the future of the profession and hopes of bringing more people back into this important industry.
