Advice ‘too expensive’: Kohler
Financial advice is "too expensive" due to over-regulation, and the end result is that advice is simply “not worth it” for consumers, argues Alan Kohler.
Writing in The Australian yesterday, Mr Kohler said a financial plan costs “at least $2,000, usually more” – but that high price is not down to “years of study by the practitioner or the expensive equipment being used”.
“In fact, health check-ups usually cost less than wealth check-ups, even though they're carried out by someone who has studied for at least seven years and who is probably using very expensive equipment indeed,” he said.
“Why has financial advice become so expensive? Because of regulation. Clients are paying for attempts to protect them as much as they are paying for the advice itself,” said Mr Kohler.
Regulation has focused on disclosure, so that any advice provided to clients comes with “huge volumes of expensive paperwork that no one reads”, he said.
“That's why clients know the advice is not worth the real cost. Most of the price pays for disclosure that they're not going to read,” said Mr Kohler.
“And the reason that sort of misguided regulation was introduced was that financial advice arose from a sales culture – that is, from life insurance,” he said.
“The definitions in the laws that control what advisers do, and the training now required to be a financial planner, are all about products and disclosure rather than simply financial advice,” he added.
As a result, regulation has had the “perverse effect” of encouraging people in the financial advice sector to disguise the way advice is being paid for, through “commissions and percentages”, he said.
“The regulation of financial advice has created a kind of whirlpool effect, where the regulation increases the cost and the high cost produces the need for more regulation,” said Mr Kohler.
The Coalition’s attempt to cut regulation is “a good thing”, he said.
“The trouble is that Assistant Treasurer Arthur Sinodinos is allowing a sales culture back into financial advice at the same time,” said Mr Kohler.
“The FOFA reforms, introduced last year, were the first attempt to eliminate the idea that a financial planner is really a salesperson – usually for a bank – by banning commissions,” he said.
“Senator Sinodinos and his colleagues should be sending a message loud and clear to all financial planners that they are not salespeople – they are pure advisers,” he said.
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