Government called to review advice reforms

The UFAA (United Financial Advisers Association) has proposed an industry study to assess the consequences of legislation changes that have already taken place.

The body has urged the government to take stock before it undertakes any further action with respect to LIF, FASEA, or remuneration and professional standards, with UFAA chair Alex Vagliviello saying the toll on advisers has been immense.

“Very few industries can relate to the two decades of relentless legislative and regulatory changes experienced by financial services, especially the advisory sector,” Mr Vagliviello said.

“In addition to issues of adviser mental wellbeing, the legacy of constant change has included industry rationalisation, less competition, reputational damage, decimation of advice business values, exit of advisers and advice becoming unaffordable.”

The UFAA has two key objectives for its proposed review: understanding mental health issues and consequences and providing context for legislators and industry associations to better understand the human consequences of future reform.

“The damage done to the sector in terms of advisers that have left the industry and their financial and mental health has been nothing short of catastrophic,” Mr Vagliviello said.

“However, there remains a tiny slither of time in which to bring the situation back from the brink – especially in the current environment where the services of experienced practitioners have never been so needed by so many people and businesses in financial distress.

“Losing advisers now would be no different to losing doctors in the face of a pandemic.”

The regulators’ “obsession” with reform has devastated previously profitable business models, the UFAA stated.

The body has criticised the FASEA exam as being opaque in application and “meaningless” as an academic industry entry requirement, with no resulting industry accreditation or use as a CPD requirement.

Mr Vagliviello added that “constant tinkering” with remuneration structures has seen value of practices plunge and the “unjust vilification of all advisers for the sins of the few added to distress”.

“These factors are deterring the next generation from considering a career in advice, further jeopardising the viability of the sector,” he said.

Former adviser and industry advocate Barry Daniels weighed in, saying one of the most disappointing aspects of the past reform has been the government and industry not acknowledging and addressing mental health issues for advisers.

“Advisers are literally fatigued and the prospects of further reform [are] the final straws – especially for mature age advisers,” Mr Daniels said.

“Incessant reform brought about the perfect storm that was further escalated with the demise of practice resale values and BOLR arrangements that were supposed to fund retirement aspirations.

“Is it any wonder that once resilient individuals simply find themselves unable to cope?”

FOFA, royal commission reforms due for review: KPMG

KPMG wealth and insurance lead Tim Thomas told ifa that Australia could learn from what happened with the regulation landscape for UK advisers, where analysts in 2018 said the push towards a non-aligned advice model following the retail distribution review led to an advice gap.

According to a Morgan Stanley research note, the region’s larger financial institutions (Barclays, HSBC, Lloyds and RBS) all exited advice or redirected their offerings to high and ultra-high-net-worth clients, before there was a 20 per cent fall in the number of advisers between 2011 and 2016.

The industry then began to move back to a vertically-integrated model in 2018.

“I think about the UK and I think about when they had their retail distribution review, which was their royal commission moment,” Mr Thomas said.

“And they did a post-implementation review of the major changes in legislative settings around the quality and accessibility and affordability of advice. Still, [it was] very focused on addressing conflict of interest issues, but making sure that enough people in the community were able to afford financial advice.

“It does feel to us, that now with COVID being a stark reminder of the financial volatility and the broader volatility in people lives and livelihoods, that some kind of a post-implementation review of FOFA needs to take place, that makes an objective assessment of whether those policy objectives are still being met.”

He added the government should consider how it plays a “role in encouraging the right business models and all segments of the market to encourage greater affordability and accessibility”.

“We saw an advice alleviation very quickly into the COVID crisis. I have to say the take up of that has not been that great, but it shows the sentiment’s moving post-royal commission to ‘let’s try and think of getting advice out there which is cheaper’,” Mr Thomas said.

“Because of the amount of community interest in those findings [of the Hayne commission], the regulator potentially [was] encouraged to swing to one end of the pendulum, which is absolutely focused on market conduct and the quality of financial advice. But we do see some self-correction coming out of COVID where the regulator and policy makers are far more sensitive to the need of getting affordable financial advice out to more people.

“I think there is a belief in Canberra that financial advice is an essential service as people’s financial circumstances have been dramatically impacted by COVID and we do see some level of advocacy from the industry along those lines as well.”