Is ASIC best interests project driving up advice costs?

The efficiency of the financial advice sector has been undermined by the Australian Securities and Investments Commission’s (ASIC’s) approach to its so-called “Best Interests Duty Uplift project” and may ultimately serve to undermine the accessibility and affordability of financial advice.

That is the assessment of the Association of Financial Advisers (AFA) which has used a submission to the Financial Services Reform Taskforce review of Mortgage Broker Best Interests Duty and Remuneration Reforms to argue that the best interest duty has proved highly problematic for advisers and will likely be the same for mortgage brokers.

However, the AFA has been particularly critical of the impact of ASIC’s Report 515 (Best Interests Duty Uplift) project under which all the large institutionally owned licensees were required to appoint an external expert to assess 100 client files as at September, 2019.

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The AFA argues that the project has served to bog down financial advice businesses with the result that costs have escalated.

“As part of this project, these licensees were required to upgrade their standards and to deliver further training. The implementation of this project has had a huge impact on these licensees, with the introduction of extensive checklists and all advisers being put on advice document pre-vet requirements, where all files need to be reviewed by a third party before being issued to clients,” the submission said. “This has also had a huge impact for financial advice clients, with the issue of Statements of Advice (SOAs) often taking three to four months.”

“It has also significantly reduced the amount of advice that is being provided and significantly increased the cost of the provision of financial advice,” the AFA submission said.

“Little has been said publicly about this project, however it is very clear that it is having a huge impact on the efficiency of the financial advice sector and ultimately will mean that financial advice will no longer be accessible or affordable for everyday Australians.

“In our view, the financial advice experience with the Best Interests Duty is a stark warning for the mortgage broker sector that this will have a huge impact and that it will result in a significant increase in costs. The implementation of a Best Interests Duty for mortgage brokers needs to be carefully worked through, and the implications diligently assessed.”




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just get these bureaucrats to actually work with financial planners on a practical exercise of how advice is provided. I'm sick of people who have never engaged with a planner taking pot shots and talking to us out of theory with no real understanding of the industry

I totally agree with this article. Due to the high time and labour cost of all the regulations (i.e. Opt In, etc) we reviewed our business operations and found the old adage true that 80% of your income is generated by 20% of your clients. So we effectively "sacked" 80% of our low income generating clients who cost more to service than they returned, and we now focus on the top 20%. We of course remain fully available to serve the "Sacked 80%" on a Fee for Service basis if and when they need us but we no longer provide them with ongoing monitoring, service and advice as they previously knew it. This has freed up time and resources to better serve the clients who generate appropriately to our business viability. Non-viable clients are simply no longer serviced unless they pay for that service as we are a business, not a charity. The commercial reality is that we must sadly leave behind the "Battlers" who need us most or else risk becoming battlers ourselves. Good Job Commissioner Hayne, ASIC and APRA. Your overreach has caused the major banks to exit the wealth industry and many financial firms to collapse or simply shut down and experienced quality advisers to "down tools" predominantly due to the marginal viability and increasing "Paralysis by Regulation" in both Finance and Financial Planning where more time is spent filling out forms to satisfy Australia's new "Growth Industry" (Compliance) than is spent actually serving clients. This ensures that quality highly educated financial advice will only be available to those with capacity and willingness to pay.........i.e. the top 20%. The remaining 80%.......good luck to you all. We have seen many clients with $1M+ held in industry super funds who pay 0.6% - 0.8% ($6K - $8K p.a.) in fees but yet receive no advice at all. The system has issues.

I was reading through RG 175.267 & Section 961B(2). Can't find any Safe Harbour provisions against ASIC intentionally going out of their way to destroy your business, in addition to unduly impacting your normal client servicing requirements. How that would be in the best interests of the client is beyond me.

Wow .... even 'blind Freddy' could have seen this coming ..... and we're only part way through the resolution journey. A massive level of over regulation because of the 5 or 10% who got things wrong in the past and were able to get away 'Scott Free'.

Advice is for the living
90% of you old timers did the wrong thing and destroyed the industry and left the mess for me to clean up. How many more messes will you make? Climate change, destruction of financial planning are just a few
You should retire and let us clean up the mess before there is no industry left. Go and look at furniture with a lid!!!!!

Quote for the day - "Your house needs painting. Bureaucracy spends 20 years building the scaffolding up around a house to protect the painters. When the scaffolding is complete the house has long fallen derelict, and the painters have moved on."

Seems t me ASIC has an agenda of driving up the costs of Compliance to deliver Personal Advice - so they can then review the appropriateness of these costs in relation to BID and the sole purpose test in the coming review.
End result, we are being pushed up the cost curve and then it will be capped somewhere below our costs?

One of the major issues in all this is the terminology applied.
By using the term "BEST" interest it opens up any assessment of any advice provided to a subjective and variable analysis of exactly what constitutes "BEST".
Best (adjective)...."of the most excellent or desirable quality".
The interpretation of this word and the assessment of whether the advice provided is of the "most excellent" is entirely subjective.
The requirement to provide advice is to very carefully analyse the client's position , needs and objectives and following research and analysis to present appropriate strategy and recommendations that will satisfy the identified needs and objectives.
What is best for one client may not well be best for another, even though their needs and objectives may be very similar. Quite obviously, it is most important the advice provided is very individualised on every occasion.
However, by insisting the advice provided should be "best" interest, also implies the advice should be "best" advice.
Taking the definition into consideration would mean the advice should also be the most excellent, rather than being excellent or high quality that satisfies the clients objectives.
The use of the word " best " leaves the attack on the provision of advice fully open at every level because it may well be next to impossible to deliver the most excellent or best advice in the very fast paced and changing world of financial services and financial products.
The BID definition should have always been the CID (Client's Interest Duty), where the adviser was obligated to always having to act in the client's interest. This definition would have achieved the same outcome as the adviser must always be obligated to act in the client's interest, rather than their own.
The problem of inserting the word " best ' simply allows no boundaries as to exactly what constitutes the subjective definition of this term and exposes advisers to endless justification as to whether the advice provided was best or nearly best, even though the client objectives and needs were clearly met and satisfied.

Well said.

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