Retail clients 'risky' to service
Servicing retail clients has become too hard and costly even for larger advice groups due to complex and challenging compliance requirements, according to Lifespan Financial Planning.
Commenting on a significant drop in adviser numbers over the last two and a half years, Lifespan chief executive, Eugene Ardino, pointed out that the regulatory framework had become too difficult for many advisers.
Along with the educational requirements, it was one of the key factors driving them away from the industry.
He said that several large advice groups and institutions were often choosing not to service retail clients and those groups were shifting their focus on wholesale clients instead.
“I do see some large licensee groups and small advice groups saying that all this retail stuff is just too hard,” Ardino said.
“There are too many minefields and there are too many risks involved so they are only going to deal with clients who meet the wholesale test where they don’t need to worry that much about most of the compliance and consumer protection requirements.
“What I am saying is that a lot of the compliance requirements that are in place are just really difficult and costly and often most retail clients don’t have the capacity to pay the level of fee that advisers would have to charge.”
On the other hand, clients who had met the test for the wholesale category were less protected by the range of consumer protections laws, such as best interest duty, conflicted renumeration or the statement of advice (SoA), among others, when they dealt with advisers or licensees.
Ardino stressed that one of the fundamental problems was also the cost of compliance, which combined with educational requirements, was driving up the total cost of advice.
He said that advisers were seeing the costs of almost everything what they were doing to go up at exponential rates, including the Australian Securities and Investments Commission (ASIC’s) levies and other licensee fees, so it came down to end user clients having to pay for all that.
“I genuinely am thinking what is keeping a lot of advisers up at night is having to tell a lot of their clients that they either have to raise fees or they can’t service them anymore and that is a really difficult conversation to have, particularly with mum and dad clients,” he said.
“It’s kind of perfect storm of factors that is leading advisers to exit and that’s also raising the cost of advice which is essentially moving financial advice into the role of being largely for the wealthy.”
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