Getting the cost of advice down to a reasonable level is one of the sector’s key challenges at the moment. It’s commonly accepted that most clients cannot be profitably serviced for less than $3,000 in annual fees, and consumer research shows that most do not see the value in advice delivered at that kind of price point.
With more clients set to be orphaned as a result of the adviser exodus, and further compliance changes this year as a result of the royal commission pushing costs up higher, this problem is only set to get worse. More consumers will go without professional advice at a time when housing affordability is at its worst in living memory and the country is recovering from the economic shock of a once-in-a-century global pandemic.
That’s why it’s essential the industry come together constructively to work towards a consensus of how we solve advice affordability. The government and regulator have shown willingness to also collaborate on this problem, with ASIC releasing the initial findings of its industry consultation into the barriers to affordable advice on Friday.
The data released focused mainly on the provision of scaled advice, which has also emerged as a top theme in our own adviser research. While advisers expressed a willingness to provide scaled advice, they were concerned it would breach the FASEA Code of Ethics, restricted by their licensees’ policy towards scaled advice, or believed there was no cost saving in doing so as they were bound by the same best interests duty restrictions.
ifa hopes to continue this conversation later this year with our brand new event, the ifa Future Forum. To be held on 8 October at the Four Seasons in Sydney, the Forum will bring together leaders across the advice sector to workshop solutions to solve the problem of accessibility and affordability in advice. It will be practitioner-led, based around issues that our readers have pointed to as being key roadblocks to providing quality, reasonably priced services to clients.
Some of the key themes we have uncovered so far include the disconnect between advice regulation and licensee policies, the lack of connectivity between industry technology providers, regulatory duplication, increasing the supply of advisers, and the development of a better model of advice for lower-balance clients.
In the lead-up to the event, we’ll be further workshopping these themes through feature articles on site and the ifa Show podcast. With an election year approaching as well as a holistic review of the advice sector from the government in 2022, it’s important that the industry get clear on what initiatives could help solve the problems it now faces, in order to take advantage of the opportunity to shape the future of advice.
You can register your interest for the Future Forum here, and in the meantime please keep your feedback coming through the comments below and feel free to get in touch at editor@ifa.com.au if you have any ideas or feedback around this topic that you think we need to hear about.
How about removing the need for SoAs altogehter?
It is my understanding that an SoA was largely created as a tool to show the client how they were paying for the service of an adviser, often via – at least to a client’s eyes – a byzantine structure of volume bonuses, trail commissions and who knows what else. Now that all off these ‘conflicts of interest’ have been removed, and advisers are bound to act in a client’s best interest by law (hence even insurance commissions would be covered here, as the advice must be in the client’s best interest), why not abolish the requirement for an SoA, and allow advisers to simply state what the advice is, and how much it costs?
Most advisers would still prepare a document of some sort for their clients even if the SoA requirement was removed, but without having to go to the over-the-top extent that is required in an SoA. An adviser could just include a summary of the advice, perhaps cash flow modelling where required, and that’s it.
Also, the immoderate rules around opt-in are simply laughable. For the majority of other services (excluding financial advice), an email from the provider lets you know in advance that they’ll be charging you again, and if you don’t want to continue, you simply contact the product provider and opt out. Essentially you’re required to… wait for it… take personal responsibility! For some reason with financial services, this idea is turned on its head. I cannot understand how it is reasonable for consumers to be required to take personal responsibility for everything else EXCEPT for financial services. If anyone has a good explanation, I’m all ears.
Finally, mortgage brokers are still receiving commissions and do not have to go to the lengths we do in order to provide their advice. We are being bombarded with legislation upon legislation and then the creators and enablers of this same legislation wonder why the costs of advice are becoming unaffordable to many. It beggars belief!
I’d attend but I can’t afford it any more. Time to increase my fees again.
$3,000 per annum ? You are kidding. That would be loss leading for a start.
Smart advisers charge more, and more, and more. Which is increasingly possible with good advice and service so hard to find among an ever shrinking number of advisers. If you haven’t been able to put your fees up in recent years, the issue is with your belief in what you do, not the clients willingness to pay it. Will some clients drop off or have to miss out? YEP, but why should we kill ourselves to try and be everything to everyone. Give clients what they value and they will pay you for it, handsomely in fact. It’s not your job to be the saviour of the many, but if you choose that, good on you, but don’t whine about not making much money. Neither do Legal Aid lawyers…
I”m at 5kp.a now for what I did for $1,000 5 years ago, all costs passed onto the end user. My client base has shrunk, profitability sky-rocketed. Unfortunately I can now not help the people who really need it.
What do you think a manageable number of clients is at around that $5k pa mark?
250 apps per annum
Well, you can. Now that your profitability has sky-rocketed you could implement a clear and specific pro bono service for up to 10% of your work, aimed at helping those who really need it.
If all advisers started doing that – charging properly for the valuable work we do AND instituting actual pro bono work, instead of just doing jobs at an ad hoc discount – then the affordability question has a pretty easy answer.
Did that before – high value clients helped pay for the small clients. Fee for service was the end of that – and that’s that.
You are kidding right ?
nnnnnuuuup
Many advisers I speak with have a minimum fee threshold of $5,500 pa GST inclusive. If husband and wife then x 2.
I have a genius once only, one-time solution.
how about the adviser pays the client for service. ? problem solved.
There is not enough advisers left to justify ASIC’s existence…nor the regulatory red tape. As the numbers have dropped so too should ASIC regulatory needs.
No leave things as is in fact just add more red tape regulations so we can keep increasing our fees (well beyond the $3,000 p.a. mentioned in the article which are clients accept).
We also get to blame the government for having created this malaise so we say happy days indeed never a better time to be in financial planning whilst so many advisers are negative and leaving with hardly any newbies joining the supply and demand equation has never been better!
What about ASIC first address how they can make their own levy affordqble to advisers ie the previous adviser levy for FY19/20 came in at $1500 per licensee plus $2,426 per adviser – an increase of 160 per cent in two years.
This might be an opportunity to show unity within the industry, then maybe the government might listen. The government are continuing on their merry way as we are not putting up a good enough united argument OR are we being forceful enough showing our concerns…….maybe we need to conduct a significant protest?
Cant see the government listening to the industry as the FPA has just pandered to them from the start of the Banking RC and it seems that government are treating them as a spineless joke.
Wont be long till the government comes out with something else to bash us with around cost but funnily enough I dont see any of them putting their hands up for a wage cut.