The government should monitor the increasing costs to practice as a financial planner and the impact it is having on the affordability of financial advice, argues the FPA.
In its 2020-21 budget submission, the FPA recommended that the government monitor the rising cost of advice through government fees and charges, cost-recovery levies and increases to professional indemnity insurance premiums.
“The government should start by establishing the scale of the challenge facing Australians in affording personal financial advice, particularly due to escalating regulatory costs,” the FPA said.
“Without this evidence base, decisions about future reforms will not be informed by a clear picture of the consumer and their interests.”
Lack of PI insurance competition a problem
The FPA noted that the lack of competition in professional indemnity (PI) insurance is resulting in rapid increases to insurance premiums for financial planners.
As a result, it recommended that the government monitor the operation of the PI insurance market in Australia and considers the options to promote confidence in the regulation of financial planning and transparency in the setting of PI insurance premiums.
“A well-functioning market for PI insurance is critical to ensure financial advice remains available for Australian consumers and that consumers remain protected,” the FPA said.
“As PI insurance is a corner-stone of the regulation of financial advice, the government has a role in ensuring that it remains available, affordable and gives appropriate coverage.”
Holistic financial plans should be tax deductible, says FPA
In addition, the FPA said tax deductions are already available for consumers who seek advice on the management of a specific asset or investment that generates ongoing taxable income, but the same tax deduction is not available for an initial holistic financial plan.
As a result, the industry body recommended that the government provide a tax deduction for fees associated with the preparation of an initial financial plan and for subsequent reviews of a financial plan.
“The lack of consistency in the approach to tax deductibility is an obstacle for low and middle-income Australians in seeking financial advice. All financial advice should be subject to the same ability to claim as a tax deduction,” the FPA said.
“If the government is concerned about the fiscal impact of this approach, it could institute a cap on the amount that can be claimed as a deduction, ensuring all Australians are able to benefit from the arrangement equally.”
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