The cost of giving advice has become an increasing issue of concern across the industry in recent years following the implementation of the FASEA standards and the government’s regulatory response to the royal commission.
At the end of 2020, it seemed ASIC was finally willing to sit up and take notice of advisers’ concerns around costs becoming prohibitive for many clients, releasing a consultation paper seeking industry feedback on the barriers to providing, simple, low-cost scaled advice.
Sequoia Financial Group managing director Garry Crole said the perfect storm of new layers of regulation, rising insurance costs and regulatory constraints around giving single-issue advice meant advisers were being forced to hike fees and shed lower-income clients.
“The professional indemnity costs are going through the roof, there are ASIC fees that licensees are having to pass onto the adviser – that all adds up,” Mr Crole said.
“The challenge with providing scaled advice is an issue – we think there’s room for it but it’s tough, at the moment you’ve got to do full advice and most clients really don’t want it at the bottom end.”
Lifespan Financial Planning chief executive Eugene Ardino agrees that the regulator’s current interpretation of the best interests duty (BID) leaves little room to manoeuvre when it comes to scaled advice, which is having a huge impact on adviser fees.
“Advisers are concerned about getting into trouble because they haven’t considered all the things they need to consider to meet BID,” Mr Ardino says.
“Acting in the best interest of the client is not good enough, you’ve got to be able to prove by documentary evidence that you’ve met the BID and the only way you are able to do that with certainty is follow safe harbour, which requires an enormous amount of investigation, research and documentary evidence.
“You can’t discard things that seem obvious from experience, you’ve got to document why you’ve discarded it otherwise an auditor may pick you up on that. Advisers have to take the time and charge the fees they need, and the unfortunate consequence of that is clients are priced out.”
CountPlus chief executive Matthew Rowe was less convinced that rising advice costs demanded action from the regulator, saying it was up to licensees and advisers to ensure their processes moved on from the paper-based mentality of the past.
“There’s this thing at the moment about ‘costs are going up and no one’s making any money’, but I actually disagree with that,” Mr Rowe said.
“Good firms out there are profitable, they give great advice to clients and do it in a transparent manner, and if they’re running an efficient practice and they’ve got good quality processes in place, they can actually make money.”
In terms of what can be done to address the situation, Synchron director Don Trapnell says the BID conundrum must be looked at before many licensees would be comfortable allowing their advisers to provide lower-cost scaled advice.
“We’ve had to instruct advisers that they must complete a full fact find for every client, and if the client doesn’t want to complete the fact find, walk away. How ludicrous is that?” Mr Trapnell says.
“Unless we address this, things like TV sales of insurance is where the consumer is going to be driven. I would love to see BID replaced with a duty to give ‘appropriate advice’ for risk insurance – that will lower the cost of giving and receiving advice, the cost of running a business, and it will mean more advice getting out to more consumers.”
Mr Ardino agrees that “anything the government can do to make limited scope advice simpler I would support”.
“More people need to have access to advice and what I’ve seen for the last 10 years is the exact opposite – it is all to do with rules around advice delivery and file keeping,” Mr Ardino says.
However, Mr Rowe says advisers and licensees also need to come to the table in terms of making significant investments in efficiency and refining their client strategies for the industry of the future.
“Advisers will need to be more efficient and generate documents more effectively, and with that comes a required spend in technology and it’s not cheap,” Mr Rowe says.
“And they’re going to be very selective about who they take on as clients and who can pay for advice going forward. We have a saying ‘to make a decent profit decently’ – that’s a complete change in mindset of how the industry has operated in the past so some firms just won’t make that shift. “
I assume at some stage we might hear from actual advisers in this series about the current state of advice?
Instead of more opinions from the heads of licensees, who all seem very comfortable with telling advisers what they should be doing, rather than looking at their own role in the ongoing deterioration of the advice landscape.
Advisers won’t be seeing “more” clients if they are buried with chasing Annual Fee Renewals for smaller clients in order to run their businesses. The instos just don’t get it, unless their real agenda is to entrench intrafund advice via a tied agency system. While I am not opposed to retirees having “annual” reviews, or the wealthy having quarterly reviews, we need a complete revamp of how we approach advice reviews. We need a legislative environment that encourages moving 60% of the population who never had a financial review, to having one full review every 5 years with 5 yr service support. This is achieved by charging a cost-effective “informed consent” monthly fee form, paid over a fixed 5 year period (not 1 year), which then expires after 60 months. Not unlike a term based mobile phone contract. This new approach will work, as it is cost-effective for both the client & the adviser. We can make advice affordable, under this new approach.
or alternatively they could pay you once every five years.
Agreed. We have started doing that, when we explain how it works, but it’s hard to justify charging a $3,300 fee ($55 a month for 60 months) when the fund members has less than $20,000 in their super fund. So they never get offered advice. To make advice “affordable” for low-income families, we need to move to an affordable fixed fee fixed term “mobile phone style” advice plan, not an “annual” review offered to wealthy retirees. “Annual” time frames for renewals have absolutely nothing to do with “informed consent”. ie. Why doesn’t the Govt legislate for quarterly renewals for ongoing fees, rather than annual? There is simply no consistency in logic here. If a client provides informed consent to a 60 month advice service support plan, that should be allowed by law – exactly for the same reason that the financial outlay to the client for a one-off fee review is the same.
We have been doing personal scaled advice for twenty years and there is a high demand from the majority of the public who do not want to pay the high fees involved with holistic advice because their circumstances are not that complicated. Financial planning companies see personal scaled advice as possibly high in volume but low in margin.
The adviser needs to:
1. Run a solvent business (this area of compliance is rarely discussed)
2. See more customers each week
3. Be provided with the process, system and technology by the dealer group to allow them to see more customers