The cost of servicing financial advice could be reduced by 37% to $3,466 and allow advisers to see an extra 44 clients each year, according to the Financial Services Council’s (FSC) white paper.
The FSC released its ‘White Paper on Financial Advice’ today which it said was a blueprint for a simplified regulatory framework that could reduce the cost of providing financial advice and allow advisers to spend more time with new and existing clients.
The whitepaper recommended:
- Raising the threshold under which consumers are identified as ‘retail clients’ to those with assets of less than $5 million (up from $2.5 million) and index the threshold to CPI (currently not indexed);
- Abolish the safe harbour steps for complying with the best interests duty;
- Abolish complex statements of advice for a simpler, consumer-focused ‘letter of advice’;
- Break the nexus between financial product and advice and remove complex labels for different categories of advice; and
- Move to sustainable self-regulation by 2030 in which prior learning and pathways, and individual registration are supported by the Australian financial services licensing regime.
The reclassification of retail clients would increase protection for up to 275,300 consumers, it said.
FSC chief executive, Sally Loane, said: “Current regulations prescribe compliance obligations at every step of the advice process. They are an unprecedented driver of cost for financial advisers and consumers, and are past their use-by date.
“Long-term the FSC’s reforms could generate cost savings for the advice industry of $91 billion over 20 years.”
KPMG undertook an analysis of the three key recommendations of safe harbour, letters of advice, and simplifying categories of advice.
Its analysis said the recommendations:
- Would reduce the cost of providing financial advice per client from $5,334 to $3,466;
- Would save financial advisers up to 32% of time when providing advice to clients;
- Allow advisers to provide advice to up to an additional 44 new clients each year;
- Enable advisers to produce 2.2 letters of advice as opposed to 1.5 statements of advice per adviser per week; and
- Reduce the time required to complete the advice process from 23.9 hours to under 16.8 hours per client.