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.

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“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.

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Yep that’s how we used to manage smaller clients with less complex needs via lower qualified and entry level Advisers.
FARSEA and ASIC have completely destroyed the ability to service lower level clients and the concept of lower level Real Advisers.
Of course unless is paid for via Hidden Commissions charged to All members when only very few members actually get that advice. Yep General Fund Advice / Sales and Intra Fund Advice / Sales are still possible because of the massively conflicted vertical model and the massive amounts of Hidden Commissions charge to most members for NO SERVICE.
All fine for Industry Super hey just not for Real Advisers.
ASIC and FARSEA could not have screwed up Advice compliance more. Oh but wait yes they can let’s just keep upping the forms, FDS Optin and Strangle it some more.

The difference is this industry has conflicts of interest that is biased towards product sales / product retention.
A paramedic isn't going to claim a patient from a specialist. But compare this to a general "advice" phone consultant who is really there to retain the client in that product and stop them from going elsewhere.

This is exactly the many times has the advice industry been compared poorly to the likes of the medical profession or Accounting professions, yet they have taken an utterly different approach. Within the accounting field again like the medical field there are certain levels of qualifications that are applicable depending on the advice required...Accountants doing simple ITR's for mums n dads can have just a Diploma etc then CPA and CA's handle the next bracket right up to more complex advice and structures and then you have high end tax lawyers and Consultants with Masters of Taxation giving very complex advice...horses for the courses...this bloody minded approach to advice that all advice should be holistic, all advisers need to be degree qualified and all advice has to follow a particular path is just plain wrong and outdated....
sadly ASIC have NO clue as to how make any positive changes and appear to have the keys to the car.

Generally agree, however "life insurance needs and strategies" are often far from a simple "basic service", particularly with blended families etc. The policy definitions alone can be complex and require an understanding.

Rice warner have made far too much sense here...asic won't understand their submission at all.

Haha what a joke! “Asset allocation at different stages of life” ie, MySuper. And anything to do with life insurance isn’t simple at all, I have nothing but the utmost respect for those that focus on it. It’s so complex, and getting it wrong can be a minefield. No thanks, let’s keep advice where it is going - degree qualified but let’s give those who have evolved with the industry the bloody credit they deserve for their deep knowledge. How can you give advice on putting money into super without also advising on where that money goes? And investment bonds, really? A simple product? Again, where do you invest with the bond - that’s not simple advice!

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