Simplify advice definitions to be more affordable
The best way to ensure affordable and accessible financial advice is to simplify definitions or categories of advice, according to a survey.
A survey conducted during the Financial Services Council’s (FSC’s) Future of Advice Summit found 44% of respondents believed ‘simpler definitions or categories of advice to allow simple advice at a low cost’ was the best way to secure affordable and accessible advice.
Another 35% said ‘reduce regulatory requirements to provide low-risk advice which increases its cost’ and 21% said ‘build tools and calculators which allow advisers to provide advice at lower costs’.
The summit launched a report commissioned by the FSC to Rice Warner that recommended the classification of advice to change to:
- General information: which will incorporate the existing definitions of education, information and general advice; and
- Personal advice: to be simplified (for delivery purposes) by separating it into simple and complex based on the extent of risk for the consumer:
- Simple personal advice – This is advice that deals with well understood financial needs and financial products. Specifically, those that are nominated under design and distribution obligations (DDO) as being for average family consumers;
- Complex personal advice – This is advice that is not simple advice but should also specifically include products and strategic topics that are known to be complex and/or risky; and
- Specialised advice – This is complex personal advice relating to a specialist field which is outside the skillset of most practitioners and requires specific expertise. Examples include investing in derivatives, CDC’s or other complex asset classes, aged care, advice on self-managed super funds (SMSF), and advice for small businesses.
Speaking at the summit, Rice Warner executive director, Michael Rice, said the research house found that if the advice industry differentiated between strategic advice that dealt with relatively risk free strategies and more specialised advice, it could split the requirements for delivering the advice.
“When you move through to personal advice, so taking products to individual needs, you’ve got some simple things that are really over-regulated at the moment and complex things,” Rice said.
“If you can separate those things you can split these requirements. Simple is those advice pieces are relatively risk free for the consumer – won’t cause them harm – and complex stuff could be similar to the current regime except I think a lot of the documentation could be vastly simplified.”
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