Peter Johnston has told ifa that the advice community needed to stand up to its detractors and challenge current political thinking.
In an email sent to ifa, executive director of the AIOFP Peter Johnston said that it had become apparent that regulators wanted advisers to change in the same way as the legal industry.
“It has become quite apparent that some politicians and the upper echelon of our regulators are convinced that consumers want financial advisers to charge in the same manner as the legal fraternity,” he said.
“A natural thought considering most of them have a law degree, but hourly rate charging is one of the most conflicted and despised forms of charging … bar none.”
Mr Johnston said the advice industry was in danger of heading down the same direction as the legal industry where only the well-off can afford legal advice.
“Those consumers who really need advice will not be able to afford it due to the high cost of advice delivery being imposed on the industry,” he said.
Former High Court judge Jim Spigelman heavily criticised hourly rate charging in a 2005 paper, said Mr Johnston, yet commissioner Kenneth Hayne seemed to conclude that advisers should start charging one.
“Royal commissioner Hayne’s conclusion that risk products should be ‘commission free’ and therefore charged on an hourly rate basis demonstrates this bias and the lack of international research behind his thinking,” he said.
Mr Johnston points to the UK as an example that made the decision to ban risk commissions, which led to higher premiums among a range of issues that led to job losses.
“To revive the industry, commissions have been reinstated to 240 per cent upfront to attract advisers back into the industry,” he said.
Instead, Mr Johnston urged that politicians and regulators adjust their thinking so that Australia’s advice community was not negatively affected.
“Our message to the regulators and politicians is that consumers detest paying an hourly rate for risk advice and unless you want a ‘UK type’ disaster in the Australian risk market, please adjust your thinking,” he concluded.
Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms.
Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.
Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).
You can email him on: [email protected]
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