Reducing advice costs by graduating levels of advice
The financial advice industry needs to accept that, just like the medical profession, not all financial advisers need to be trained to a uniform high standard.
Actuarial research firm, Rice Warner has argued that there are many professions where education and qualifications are specific to the level of service being provided and that this reality could be translated to the financial planning arena.
“A good example is the medical profession with generalist and specialist doctors, nurses, nurse practitioners, midwives, and paramedics. Many doctors objected when paramedics were established as a profession with authority to deliver complex therapies and dangerous drugs, but nobody objects today,” the firm has told the Australian Securities and Investments Commission affordable advice review.
“People who are well trained in specific, limited disciplines can deliver a service that is at least as professional as that delivered by those with more comprehensive training. A similar approach is needed for financial advice.”
The Rice Warner submission ha also backed the calls for simplifying the documentary processes around the delivery of advice, particularly product disclosure statements (PDSs).
“We consider product disclosure statements and statements of advice (SoA) to be incomprehensible for most consumers, and they should be replaced with shorter more legible documents,” the submission said.
“Many of these documents are lengthy, particularly an SoA where a range of needs is addressed and a range of products might be compared. There is no flexibility in using these documents; the requirements are similar whether the advice is simple, single issue (‘limited’) or complex,” it said.
“Further, there is no triaging based on the risks faced by a consumer, so simple risk-free advice has the same legal requirements as a high-risk plan or recommendations regarding complex products; this leads to higher costs than most consumers will bear.”
Like other submissions to the ASIC review, Rice Warner has argued for more certainty around the definition of advice with fewer requirements around basic services where the potential harm to a consumer is very low.
“Simple personal advice would include many basic services where the potential harm to a consumer is very low,” it said and included the following examples:
- Savings and budgeting support;
- Mortgage broking. We recognise this is not currently defined as financial advice, but it ought to be, particularly for advice around investment properties;
- Life insurance needs and strategies;
- Debt consolidation and reduction;
- Savings (showing the value of an insurance bond; showing the value of savings due to compound interest);
- Superannuation contributions (value of additional contributions; impact of pre- or post-tax contributions);
- Asset allocation at various stages of life; and
- Modifying an existing product by increasing premiums, adding contributions, or making a higher investment. These are simply adjustments within an existing strategy or plan.
“The processes and documentation for simple personal advice would be much simpler than the current requirements. Educational standards should be different but sufficient for the topics and products upon which advice is given,” it said.
Recommended for you
The top five licensees are demonstrating a “strong recovery” from losses in the first half of the year, and the gap is narrowing between their respective adviser numbers.
With many advisers preparing to retire or sell up, business advisory firm Business Health believes advisers need to take a proactive approach to informing their clients of succession plans.
Retirement commentators have flagged that almost a third of Australians over 50 are unprepared for the longevity of retirement and are falling behind APAC peers in their preparations and advice engagement.
As private markets continue to garner investor interest, Netwealth’s series of private market reports have revealed how much advisers and wealth managers are allocating, as well as a growing attraction to evergreen funds.
