Removing safe harbour and enhancing the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics will reduce 9% of the cost of financial advice and a 7% reduction in time spent, according to a panel.
Speaking on a Financial Services Council (FSC) panel on its whitepaper on financial advice, KPMG partner, Cecilia Storniolo, said over the last two years she had been hearing that the interplay between the FASEA code and best interest duty were causing the industry a great deal of angst.
The whitepaper had called for the removal of safe harbour steps in best interest duty and for it to be the first priority of the Government to enable a principles-based advice model under the existing regulatory framework.
“During the interviews, some of the advice practitioners highlighted to us examples of where they actually may be successfully meeting part of one of those provisions but actually failing the other,” Storniolo said.
KPMG estimated the advice process to cost $5,334.64 and that the average cost of advice charged was $3,660. It said this showed advisers were not currently covering 100% of their cost production.
KPMG estimated that removing safe harbour while using the code of ethics as a tool to support compliance would reduce the cost of advice to $4,853.02. This was the proposal the FSC had recommended in its whitepaper.
However, removing safe harbour alone would reduce the cost by 11% to $4,746.84.
FSC policy manager for advice, Zach Castles, said safe harbour, FASEA, and best interest duty were all legislation created in isolation that impacted the provision of financial advice and made it risky to provide limited advice.
“We want to ensure that we unleash limited advice going forward but also enable a principles advice system to flourish,” Castles said.
“By removing safe harbour steps it gives the code of ethics the space to evolve as the profession evolves and as consumer changes evolve.
“Most importantly, it enables the best interest duty to effectively be stronger as the overriding provision on the advice that advice providers offer – that advice is judged against best interest duty alone. How they meet it is up to them and formed by the code of ethics.”
Mercer Australia financial advice leader, Susie Peterson, said if advice was given that was in the best interest of clients even though it missed points that safe harbour required advisers to address and thus failed through a technical aspect of the law that was supposed to help, it needed to be fixed.