InFocus: Are politicians finally awake to their financial planning mess?
The exit of up to 40% of financial advisers from the industry over a five-year period has gained the attention of Government.
While both sides of politics are a long way from admitting that successive Governments of both stripes may have gone too far in dealing with financial advice – that they have used a meat cleaver when they should have used a scalpel – they are recognising that they have created a mess which has the potential to get significantly worse.
No one in Government is openly acknowledging the creation of a mess, but Treasury and the Australian Securities and Investments Commission (ASIC) are actively reviewing the state of the financial planning industry, the reality that there is increasing demand for financial advice and what must be done to ensure that advice is delivered.
ASIC acknowledged its work when answering questions from the House of Representatives Standing Committee on Financial Services and Economics when it said that it had engaged external consultants to help it understand issues related to “access to advice”.
Less public and vastly less obvious has been consultations being undertaken by the Treasury under the auspices of the Licensee Leadership Forum (LLF) in which it has sought the views of the major licensees with respect to key issues impacting the financial planning industry both now and into the future.
Importantly, elements of that consultation have picked up issues raised by the Financial Planning Association (FPA) around adviser registration and self-licensing. Among the questions being canvassed within the so-called LLF are individual licensing and the benefits of the “authorised representative” regime which has been the foundation of financial planning for the best part of two decades.
What is clear from the work of both the Treasury and ASIC is that exit of advisers from the industry driven by a number of factors not excluding the Financial Adviser Standards and Ethics Authority (FASEA) regime have acted as catalyst for the Government to seek advice about how the looming advice gap might be filled.
Thus, ASIC this month told the Parliamentary Committee that it had engaged external consultants to undertake several pieces of research to help it understand key issues related to Access to Advice with the research focusing on:
- What financial decisions Australian consumers are required to make;
- What factors contribute to the cost of personal advice; and
- What types of information an adviser is required to gather and analyse when advising a consumer to switch from a financial product which the consumer holds to a new product.
In doing so, ASIC admitted “there is evidence of a reduction in the supply of financial advice to Australian consumers”, noting that “as at 25 June 2020, there were approximately 22,200 current financial advisers on the Financial Advisers Register, which is 11% below the long-term average (of 24,930 advisers) prior to 1 January, 2019, when much of the Professional Standard Reforms commenced”.
“More advisers may leave the industry as the Professional Standards Reforms are fully implemented. Further, a number of large financial institutions have withdrawn or are proposing to withdraw from the retail financial advice market altogether. Others have scaled-back their retail financial advice businesses,” it said.
“ASIC wants Australian consumers to have access to affordable, quality personal financial advice that meets their needs. In light of this, ASIC is currently undertaking a project that is looking at unmet advice needs and how to address them,” the regulator said.
“Specifically, ASIC is examining what impediments industry is facing in providing affordable and scaled advice to consumers. ASIC research shows that consumers want access to scaled and affordable personal advice.
“ASIC also knows, because industry has repeatedly told us, that it struggles to provide scaled and affordable personal advice. ASIC is focusing on identifying what steps industry and/or ASIC can take to overcome these impediments.”
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