Rice Warner calls for overhaul of personal advice laws

The Future of Advice Report, commissioned by the FSC in partnership with Rice Warner, recommended legal definitions surrounding advice be changed to incorporate ‘simple’ and ‘complex’ personal advice.

Simple advice would entail advice around “well understood financial needs and products”, specifically those deemed suitable for average family consumers under ASIC’s design and distribution obligations, Rice Warner said.

Advice that fell under this definition would not require advisers to conduct a comprehensive needs analysis of the client, under the model recommended by the research consultancy.

Rice Warner said current obligations on advisers had been developed from a different industry structure where high-risk products and financial incentives played a greater role.

“The delivery of advice is not structured around the risks borne by consumers, so simple advice has the same complex and lengthy processes as high-risk advice,” the research firm said. 

“This drives up the cost to consumers to unsupportable levels. If advice is delivered in a cost-effective manner, this will improve trust in the sector.”

The firm noted that the FASEA educational standards framework had also driven “a reduction in the number of advisers, both through large numbers leaving the industry and fewer new advisers joining”, with Rice Warner data indicating the industry would shrink by 36 per cent over the next five years.

FSC chief executive Sally Loane said the industry body hoped the report would start “an important policy debate on how we can rebuild a simpler and more affordable advice industry”.

“The aim is to build a new model for financial advice which not only makes professional quality advice more affordable and accessible for consumers, but also removes the mass of costly compliance and regulatory burden on the sector,” Ms Loane said.

She added that the government and regulators needed “to act now to change the system” given the predicted exodus of advisers.