Raising consumer disclosures to manage issues such as conflicts of interests has only pushed up the cost of advice, as consumers don’t read the details of lengthy documents, according to Midwinter Financial Services.
Midwinter cited the Australian Securities and Investments Commission (ASIC) ‘REP 632: Why it shouldn’t be the default’ report that showed only 20% of consumers read disclosures, while only 10% said they do thoroughly.
This came as advisers were expected to continuously disclose fees to clients, as well as statements of advice (SoAs) alienating clients, creating the risk that consumers were being overwhelmed with information due to regulatory compliance.
Ivon Gower, Midwinter Financial Services head of product, said regulations had caused another round of unintended consequences.
“The cost of advice continues to escalate, and many advisers are now leaving the industry,” Gower said.
“As an industry, we know that moving away from product-led advice and towards strategic advice is the way to deliver better outcomes for clients.
“The question is whether we currently have a high-performance regulatory framework that supports quality advice.”
Gower said technology should help lift some of the regulatory burden from the advice sector, as many advisers were fearful of inadvertently breaching regulations such as the best interests duty.
“The focus often falls on product fees which, on paper, can easily be used to justify product choices,” Gower said.
“However, fees are just one factor that help generate net returns, which is only one component of helping clients achieve their broader strategic goals.”
Gower said the right platform should make it easy to generate, save and search SoAs and records of advice (RoAs) that clearly outline the rationale for advice.
“The industry may not yet have a high-performance regulatory framework, but technology can automate many of the recurring areas where a practice can inadvertently slip up,” Gower said.
“The regulatory equilibrium in the advice industry is well intended, but not yet balanced. It's unlikely to change in the near term, which means technology will have an increasingly important role to play in bringing quality advice to as many Australians as possible.”