Financial planners are being forced out of business by the rising cost of Government regulation – something which should prompt a thorough assessment of how to fund any compensation scheme of last resort, according to the Financial Planning Association (FPA).
In a strong pre-Budget submission filed with the Federal Treasury, the FPA pointed out that new policy initiatives such as the compensation scheme of last resort were being imposed on top of an already complex regulatory framework which had evolved over several decades.
It said that planners were the subject to multiple mandatory fees and charges and that increases to the cost of practicing as a financial planner were occurring at the same time as significant disruption and reform to traditional revenue arrangements for planners.
It said that increasing costs were flowing on to Australian consumers, putting financial advice out of the reach of many and cited the cost of delivering a state of advice (SOA) having recently been estimated at $6,500 – several times the typic fee-for-service of $2,400.
“While the FPA supports the introduction of many of these reforms, the Government must consider their impact on the long-term viability of the financial planning profession. In particular, rapid increases to the cost to practitioners of additional regulation are a serious risk for small and medium-sized financial planning businesses,” it said.
“Major financial institutions, including Australia’s big banks, are leaving the financial advice business or reducing their presence. Many practitioners are sole traders or work in small and medium-sized practices and their ability to absorb additional regulatory costs is extremely limited. Escalating regulatory costs will result in financial advice becoming more unaffordable and unavailable for many Australians.
“While implementing its reform agenda in financial services, the Government must have regard to the cost to practitioners and the impact this will have on Australians seeking financial advice. Unrestrained cost increases will force the closure of financial planning businesses, reduce employment in the sector and set back the development of the financial planning profession.”
“The Government must investigate the recent increases to regulatory costs and carefully consider its reform agenda to ensure that, while it achieves its goals of protecting consumers and restoring trust in the financial services sector, it does not also damage the financial planning profession and make it more difficult for Australians to access qualified and independent financial advice,” the FPA submission said.