In its response to the Quality of Advice Review Issues Paper, the Financial Planning Association of Australia (FPA) has called for industry and government to urgently come together and immediately address the quagmire that has been created by complex, overlapping and contradictory regulations, codes and rules that now govern the provision of financial advice.
“Financial planners came into this profession to help Australians achieve their financial goals and have confidence in their future. They did not bargain on spending more time generating paperwork and filling out forms than helping their clients,” says Sarah Abood, CEO of the FPA.
“Just one of many examples is ongoing fee disclosure requirements. While markets are shaky and inflation spiking, many planners are having to drop everything to get multiple sets of forms signed by their clients before 30th June to re-authorise their ongoing fees. These fees have already been disclosed and approved up to seven times in the past 12 months. It’s inconvenient and confusing for clients, it’s costly for planners, and it’s got to stop.
“We are calling out many other examples in our submission, of areas where the current regulatory settings are adding unnecessary cost and complexity to the financial advice process, at a detriment to consumers. It’s making advice harder to understand and more expensive than it should be for consumers, and it’s playing a role in the decisions of financial planners to leave the profession,” Ms Abood says.
As part of an ongoing working group comprising of 12 industry associations regarding the Quality of Advice Review, the FPA has endorsed five key themes as priorities for improving the affordability and accessibility of quality financial advice for consumers:
- Recognising the professionalism of financial planners
- Addressing the needs of clients including easier-to-understand documentation
- Achieving regulatory certainty
- Improving sustainability of profession and practices
- Facilitating open data and innovation
Professionalism of financial planners
Ms Abood says: “We need to move to a simplified regulatory regime that recognises the professional status of financial advisers and planners – who now require relevant tertiary qualifications, an externally administered examination, individual registration, and 40 hours per year of Continuing Professional Development. Doing so will significantly reduce the cost of financial advice to consumers, while maintaining quality and high standards.”
In the FPA’s submission, a key recommendation is the removal of Chapter 7 from the Corporations Act 2001 and the structure of the financial services law.
“We need to eliminate duplication between the registration and professional standards for financial planners, and the authorisation and other financial advice obligations in the Act,” says Abood.
“The current financial advice affordability issues cannot be fixed by more band aid solutions.”
Needs of clients
Abood says the financial advice disclosure and documentation framework should be updated to ensure it is designed with clients’ needs and best interests at heart.
“To achieve this, we recommend a clear separation of what is required to be disclosed to the client to meet regulatory and consumer protection requirements, and the documentation of the financial advice and recommendations, for example using incorporation by reference,” she says.
“We also need to remove duplicated requirements across multiple documents. This will improve their readability, and therefore the client’s understanding of both the financial planner/client arrangement and the financial advice.”
The FPA also recommends the terms ‘financial product advice’ and ‘general advice’ should be removed from the Corporations Act 2001 with the term ‘advice’ only being used in association with ‘personal financial advice’. ‘General advice’ should be changed to ‘financial product information’ and require a new strong and clear consumer warnings.
”This will expand consumer protections to individuals receiving financial advice from those who are not currently required to meet the minimum education standards.
“To ensure such services can continue to be provided by appropriately qualified persons, education standards should be developed based on a framework of scalable competencies designed around core financial planning competencies and advice specialisations,” Abood says.
In its submission, the FPA says the multiple factors that contribute to current regulatory uncertainty must be addressed if true accessibility and affordability is to be achieved for the provision of financial advice for consumers.
“For example, many licensees and product providers are currently going above and beyond the legal requirements to reduce their risk, due to uncertainty about how laws will be interpreted. However those additional requirements have to be delivered by planners who are by and large small business people with little ability to absorb the increased costs,” Abood says.
“We have a number of recommendations in this area, such as exempting some simple strategies from SoA requirements, consolidation of advice fee authorization requirements, aligning the CPD year with the Financial Advice Register registration/renewal period or with the financial year, and the temporary COVID-19 relief measures to be made permanent.”
Sustainability of profession and practices
“To continue delivering services to clients, planning practices must be financially sustainable, and we need to turn around the current decline in planner numbers,” Abood says. “Our profession must be investible, insurable, and attractive to new entrants.”
The FPA says many practices specialise in a particular area of advice, and there is a need to remove regulatory conflicts and uncertainty that currently exist for those delivering such “scoped” advice. The regulatory environment also requires change to address the current inequities in the financial advice ecosystem. Key changes include the tax deductibility of both initial and ongoing financial advice fees.
Open data and innovation
Abood says Australians will benefit from having easy access to all their financial data when and where they need it, aligning with the intent of the Consumer Data Right (CDR).
“At present, lack of access to data creates significant inefficiencies in advice provision,” she says. “All financial products should be included in the CDR.
“Some licensees still require client data to be captured in paper-based fact finder documents, manually transferred into CRM/Modelling systems, transferred to SOA generation systems, copied to application forms and other systems largely because of the lack of a common data standard.
“Data standardisation will significantly improve the access to and affordability of advice,” Abood says: “Financial planning is a profession that is critically important to the financial futures of Australians. We urgently need to make sensible changes that will ensure consumer protections are preserved, and also ensure that a thriving community of professional financial planners is available to deliver high quality advice at a more affordable price in future.”