Royal Commission told about financial planning reforms

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been told that recent legislative changes have resulted in a significant in the regulation of financial advice and more reliance on regulatory levers than the licensing.

A briefing note provided to the Royal Commission has painted a picture of an industry which has undergone significant change, with it being too early to assess many of the impacts.

“Cumulatively, these reforms (including the further reforms committed to by Government) have seen a significant shift in the regulation of financial advice (compared with the framework before the [Future of Financial Advice] FOFA) with more reliance on a range of regulatory levers rather than just the general licensing framework,” the briefing note said.

“Recent reforms also represent a move away from reliance on disclosure to a more interventionist approach,” it said. “As a number of these reforms will commence over coming years, the full impact of the reforms cannot yet be assessed.”

“A key challenge in regulating the financial services sector is to find the right balance between consumer protection and ensuring that consumers have access to affordable financial advice,” it said. “It is estimated that 20 to 40 per cent of consumers in Australia access the services of a financial adviser or planner, with 48 per cent of Australian adults indicating unmet advice needs.”

“Amongst the barriers to accessing financial advice is the high cost of advice and lack of funds to pay for advice,” the position paper said. “Estimates of the average cost of financial advice range from $1,250 for scaled advice to $2,500 for comprehensive advice. In contrast, Australian adults were only willing to pay, on average, $780 to receive financial advice.”

It said accessibility, therefore, remained an important consideration in any reform.