If FoFA cost $3 billion, what will FASEA cost?

If implementing the Future of Financial Advice (FoFA) reforms cost the industry $3 billion, what will be the ultimate cost of implementing the Financial Adviser Standards and Ethics Authority (FASEA) regime?

That is a question being posed by InFocus managing director, Darren Steinhardt who said that while much attention had been directed to the additional costs being carried by financial advisers, the additional costs to licensees should not be overlooked.

He said that during the FoFA implementation and effort had been made to keep track of the implementation costs across the industry, but this was not the case with respect to FASEA.

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“…it is strangely quiet when it comes to calculating the cost of the FASEA implementation,” Steinhardt said.

“The end cost of FoFA implementation was massive, (approximately $3 billion based on research undertaken by the Financial Services Council at the time) and ultimately these costs were absorbed by advisers and by clients. It is somewhat unnerving that all is silent on the cost of FASEA and how this might impact clients and the affordability of quality advice.”

“This lack of consideration of the cost is symptomatic of all changes that are being imposed on advisers (and ultimately their clients) at the moment,” he said. “There is no such thing as a Regulatory Impact Statement or in fact any visible thought being given to costs, which ultimately are passed on to clients.”

Steinhardt suggested it was time to slow down and consider the real cost of FASEA implementation.

“Ironically, the future for good advice businesses has never been greater because ultimately (and sadly) there will be less advisers and higher barriers to entry,” he said.

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One can estimate the FASEA costs to licensees, particularly licensees where advisers are employees, and hence the employer will pay for them. You'd need to refer to Adviser Ratings data (I have), but let's say there's an average 50/50 split between the relevant degree/non-relevant degree pathways, meaning advisers have to complete anywhere between 1 - 8 subjects of a Grad Dip (or bridging courses). Let's say 4 subjects is the average at approx. $2K a pop; that's $8K for 4 subjects. Then add the FASEA exam at $600. We can't even estimate the productivity losses, but the education institutions themselves suggest a Grad Dip subject needs about 120hrs study to complete. Oh, also add the 4hrs for the FASEA exam and also another 4 hrs per subject to attend a Grad Dip exam. Even if only 15,000 out of the 25,000 advisers on the FAR sat the exam and completed 4 subjects, that's a total of (15,000 x $8,000) + (15,000 x $600) = $120,000,000 + 9,000,000 = $129m in straight out of pocket education costs alone. There's a lot more, but at least this gives you a starting point.

MoneyManagement - A couple of days ago, Treasury released the draft bill which will force all ongoing service fees to end 30 days past the 12 months opt-in date. So it is disappointing that you have missed this. Financial advisers have only 24 days left to provide feedback. We need to get the message through that 30 days is simply ridiculous and unfriendly to consumers. We need advisers and consumers to deliver feedback on this as soon as possible. There is no way they will keep the 2 year period, they are determined to make opt-in annual. But the current regime of 60 days to issue a renewal notice and 30 days to sign, plus 30 days grace period is far more sensible than 30 days. If they proceed with this, there will be consumer harm, no doubt about it. Throughout the RC the voice of consumers who use financial planners was ignored. Hayne also ignored the fact that the level of trust and satisfaction among financial planning clients (even those of bank-based financial planners) is very high compared to other professions. Many of these consumers have had their service ripped away from them as a result of excessive regulations already forced upon us. The proposed 30 day period is excessive and will see many more consumers separated from the financial adviser. This is the person who gives them confidence and security in their financial future. Please publish an article on this. We need advisers to stand up and give feedback to Treasury. As we have seen, the FPA, AFA and dealer groups have failed to have any impact.

The Draft legislation for annual renewal will not remove the fact that an adviser has 60 days after the renewal notice day to provide the renewal notice and an FDS (Section 962K). What is happening is that the disclosure date is being removed, as Opt-In will happen every year. The impact of this change is huge and it will add a ridiculous level of red tape, however advisers will still have 60 days to issue the FDS and Opt-In notice and clients will still have 30 days to respond to the Opt-in notice. If they don't respond, then advisers will still have a further 30 days to turn off the fee (Section 962N). Advisers should nonetheless speak out about this proposal and the impact that it will have on everyday Australians who want financial advice.

I've heard it but not certain, that any move by advisers to shorten the agreement terms to 11months and have them renewed, in order to get around having to do FDS's will not be allowed or be seen to be a contravention of the law?

We already had about 33% of our labour cost as compliance. We've just hired another one, 100% of this time will be compliance.

We have also started sacking low fee clients as we can't afford them either.

Fortunately new business is robust in our now higher target market so we'll be OK business wise.

It pains me to cut people loose as where will they go, who will help them? The cost and business risk is too much for us to bare and we just can't afford to keep them.

Credit to ASIC, they've made the situation soooo much better. Changes were obviously required but the use of surgical knife is much more effective, cheaper and efficient than the blunt ball of a hammer however I guess you can't expect tax payer funded govt flunkies to have a clue about how the real world works.

Australia will pay the cost of this debacle for decades with little to no net gain. We'll just have lots more paperwork that no-one will read. Good job ASIC.

The answer to the FASEA question is easy.
The banks have shed their financial planning wealth aspirations and divorced themselves from the industry.
If more than 3000 advisers have left the industry in the first 12 months and that exodus will continue well before 2026 doesn't convince anyone, then if the reported 16 suicides and the destruction of many small businesses with over-reaching FASEA requirements hasn't convinced anyone yet.
Then perhaps ASIC's pursuit of levies and subsequent 25% increase within 12 months on Licensees based on the dwindling numbers hasn't convinced anyone yet, then maybe the lack of future numbers with the education is limited by their inability to produce any income before a 12 months internship. Who, but a naive practitioner would be convinced to pay someone around $70,000 p.a + super to make coffees.

The loss of many experienced professional advisers who's previous education in most cases obtained before 2013 including the FPA's CFP certification are not recognised under FASEA, the cost, I think is immeasurable.
The change in all forms of remuneration involving commission of any kind including previously those grandfathered prior 2013 plus the ultimate removal of life insurance commissions will result in just one thing.
The reduction of current business income and hence valuation
The answer is the complete destruction of the financial services industry because more compliance, and increased costs associated will not lead to better consumer outcomes. It will mean that less people will seek advice due to the inherent costs now being imposed on those who think they are going to charge whatever they like and will need to do so in order to survive.
There's only one problem with that theory, human nature being what it is, will not pay for something unless they absolutely have to, have no other choice and then have the capacity to do so.
Vale financial services !

You are so correct Aleycat. But no one is listening.

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