Unrestrained regulation and costs are driving advisers out of business

Unrestrained cost increases will force the closure of financial planning businesses, reduce employment in the sector and set back the development of the financial planning professional. 

That is the bottom line assessment of the Financial Planning Association (FPA) contained in a supplementary submission to the Government’s Retirement Income Review with the planning organisation arguing that the Government must investigate recent increases to regulatory costs and carefully consider its reform agenda. 

The submission said that financial planning in Australia was going through an unprecedented period of change and that the totality of these changes was affecting the long-term viability of the financial planning profession. 

“Addressing misconduct and creating industry-wide ethical and educational standards is a necessary part of professionalisation and we support the regulators’ work to achieve this. The Financial Services Royal Commission revealed practices which are inconsistent with a modern profession and must change to restore trust in Australia’s financial services sector,” it said. 

Related News:

“However, new standards are applying on top of an already complex regulatory framework that has evolved over several decades. While the FPA supports the introduction of many of these reforms, the rapid increases to the cost to practitioners of additional regulation are a serious risk for small and medium-sized financial planning businesses. 

“Major financial institutions, including Australia’s big banks, are leaving the financial advice business or reducing their presence. Many practitioners are sole traders or work in small and medium-sized practices and their ability to absorb additional regulatory costs is extremely limited. Escalating regulatory costs will result in financial advice becoming more unaffordable and unavailable for many Australians.” 

The FPA has recommended that the Government establish the scale of the challenge facing Australians in affording personal financial advice, particularly due to escalating regulatory costs. 

“The FPA recommends that the Government, through ASIC, monitors the increasing cost to practice as a financial planner, including through government fees and charges, cost-recovery levies and increases to professional indemnity insurance premiums, and the impact this is having on the affordability of financial advice,” it said. 

Recommended for you




Whist I expect there will be some strong opinions on this article today, and a lot of anti FPA sentiment, the fact is that the days of the small FP business (1 or 2 Advisers) is over, Just like the suburban Milk Bar or Hardware store, the small business operation is not really viable any more and that's been coming for a quite while.
Staff wages, Commercial Office rent and PI are still the largest percentage cost of your operation and the extra costs of regulation are just on top. Super advice is complex and its very hard to do well on your own, If you want to survive, consolidate with another business or share Office space & expertise with other Advisers at a minimum to survive.

I agree. And try passing on cost increases to clients now when we have market meltdown. With many advice businesses pegged to a % of assets fee structure, it is going to get worse and businesses will fold.

Small businesses are closing down due to overregulation. You mention rents - landlords have to charge increased rents to cover insurances, levies; land tax, OH&S inspections etc; i.e. costs imposed buy government at all levels. Wages are subject to payroll tax, SG levies i.e. government imposed regulation. And then you have PI as well - the PI insurers are running scared because of, you wait for it, government initiated interference and regulation. You just wait until the Royal Commission draft regs are implemented, as well as the DDO stuff that's coming through as well. Let's not forget about the costs to comply with the FASEA stuff either. $600 to sit the exam; $2,000+ to sit a grad dip subject or bridging course, with some advisers having to do 8 subjects ($16K). I'm not suggesting that some of this is not needed, but it's all in the timing, and it really is like getting hit with floods, bushfires and coronavirus at the same time - wait that has happened.... That's Australia's elected 'representatives' for you.

Well this comment is just incorrect... I guarantee I do a better job researching and advising my client then you do with multiple hands touching a file they don't care about. The amount of large operations with under-skilled people performing research calls and missing important areas is huge...

You almost seem happy about this happening to? Allowing only larger institutions to operate is not good in the slightest for competition in the marketplace.

I guarantee you can't. Post back how many stocks there are on the ASX, how many managed funds there are in Aus and how hedging works without looking it up. I'd bet you are not even close on the advanced SMSF strategic stuff. Who said my colleagues "don't care" (to quote you) on files they look after. They care very much. Opinionated drivel. What are you talking about "large operations". I talk about a simple scaled business and this is your response. Woeful. Yes, I'm very happy this is happening. So sick of fixing the advice mistakes of the backyard operators and dealing with new clients in tears.

No wonder you need so many staff. Sounds like you are trying to run an asset management and super administration business as well. Small financial advice practices outsource that stuff to the specialists. It may mean foregoing some inhouse revenue, but it simplifies the business and delivers better outcomes for clients.

Ohhh, apologies you're just being a troll... Hope you're having fun.

we need more regulation not less. we are only drowning in paperwork, we need to be dying.

ASIC i am begging you, please add another 10 more rules to the advice process. we need to invent another document between SoA, and Roa, maybe the following would be good:

a. interim SoA
b. then SoA
c. then-interim RoA
d. then RoA

there you go, another two more pieces of documents. let's drown everybody in paperwork and then collapse with the rest of the economy.

you turds at asic you do get that when there is no one left to regulate you will be made redundant too right ?

The whole profession is paying the price for the mistakes or greed of a few. Where are our supporters in Government. Write to your local MP !

There's no point advisers writing to their MP. MP's from both sides have made it abundantly clear they don't care in the slightest. They know that persecuting advisers will be viewed favourably by the media, which has long had an anti adviser agenda.

Instead, advisers should send their clients to see their local MP. Particularly low income clients who advisers will no longer be able to service due to rising costs and complexity. Give those clients their local MPs office address, and tell them to go down there and camp in the waiting room until the MP sees them.

Perhaps when we take calls and emails about the market we explain the agreement is for 1 review in (insert month) and they can get ad-hoc fee for service advice for (Insert $).
They wont pay so will then panic sell their assets.
Run on liguidity.
Run on unlisted assets.
Super funds will freeze assets
Gov will need to get involved.
FPA can then use the advertising levy to outlined the 'value' of our 'service' between annual reviews and 'compare the pair' between our clients that pay for advice and we 'service' between review documents keeping them disciplined compared to the governments 'clients' (those the Gov has advised / legislated don't need advice) and show the damage of panic selling.
Maybe then legislators will see some of the value we provide apart from a compliance document. It will probably help them too by supporting the market.

While the Fed Govt is on a cash spendathon to boost employment, they are being undermined by their own Treasury Department. Right now, draft Treasury legislation, if passed, will create massive unemployment in the finance sector, throwing thousands of families on the job scrap heap, by burying them in ridiculous levels of red tape they cannot meet (in order to get paid). Makes you wonder what parallel universe this Govt is living on.

The Government has announced it will support small business to help them through this period of uncertainty with the Coronavirus. I presume this won't change their view about implementing all the RC reforms without considering the impact? I guess they mean small businesses that are not financial advisers.
Then we have platforms like Colonial First State ceasing grandfathering several months before they are legislated to do so. To me, this is a calculated move to try to destroy advice businesses at a time when they have so much change on their agendas, so much compliance to deal with, so they don't have the time to do the client work required to retain revenue. And is it possible to retain these clients profitably when the cost of producing an SOA is now around $5,000? Then there is the ever-increasing cost of providing ongoing service.
Shame on them, shame.

As the FPA says, much of the new regulation has been overlaid on top of existing regulation. What is absolutely essential now is to get rid of prior regulation that has been duplicated or subsumed by newer regulation.

Step 1 should be the removal of TPB from financial adviser regulation. They provide no additional value whatsoever in the current environment. They just add cost and complexity.

@ Maslow,
I'm not sure where you've been for the past 12-18 months but it seems to me, being part of a large dealer group like AMP, Commonwealth Financial Planning or any other major Licensee owned and operated by a bank, fund manager or other major institution is why we had a Royal Commission into the Financial Services sector in the first place.
I think it's a bit rich of the FPA to start worrying about the costs associated with running a small financial planning practice when you find that they having been nailing CFP's with an annual $200 advertising levy that delivers absolutely no benefit to anyone but the FPA.
And now through inaction by this industry organisation, the CFP designation which was once touted by the FPA has the highest recognition of professionalism is no longer given any recognition by FASEA.
That's just one of the many problems associated with the exodus of advisers from the industry and it will continue for obvious reasons.

Well, I've been here. Not sure where you have been for the last 2 decades but you don't need to be in a large Dealer Group to have a scaled business with good young Advisers coming through overseen by some experienced ones to achieve good succession outcomes. I think you just like shooting from the hip in your posts really.

Hello ASIC, Govt and anyone else who cares to listen.. I just heard on the TV that there will be a $20b stimulus package for the economy. That means that they are forecasting stress from the corona virus pandemic.
Now I am a very simple person, but wouldn't you think deferring the relentless reforms for say, the next 12 months might actually make sense. Yes, go ahead and reform but just be aware of the impact to an industry that is completely under siege and being systematically destroyed by bureaucrats who really do not under the industry. Nothing to gain when the economy is stalling and going backwards!!!! Just a thought.

The govt may be providing assistance and relief for the rest of the economy, but when it comes to financial advisers they will undoubtedly continue their persecution campaign. There's just too much easy media mileage in financial adviser persecution.

In fact ASIC is probably salivating at the thought of persecuting advisers for "fee for no service", if clients request their annual review via phone rather than coming into their adviser's office in the current climate.

The FPA should be assessing is the financial return from providing advice worth the financial risk to the advisers family assets. With the raft of new prescriptive legislation and over regulation and then add FASEA being a law maker it is own right with an ambiguous code of conduct; is the financial risk to you and your family's asset worth providing advice to retail clients. After all we are human and mistakes are made in all professions however our comes at an unacceptable costs both financially and professionally.

This argument should also be added to the rising cost of advice.

Well that's the funny thing - any adviser worth his salt will have no personal assets at risk - so all the over regulation is in large part mitigated by people with asset protection strategies!

It's a bit rich for the FPA to talk up the cost of regulation when they expect me to renew my membership with them for $1200 a year and pay the CEO $300,000 plus!

The CEO is getting about $500k inst he? More than the Prime Minister...... what a joke that is.

the hilarity of it all is in the "bonus" what the hell for ? its a not for profit, member services organisation.

this is why I cannot stand these associations and have cancelled my fpa, afa and various other memberships which after having passed the fasea exam, and done the study is not necessary thank god. hopefully, the TPB will also be rid of. total waste of money

Dante, how about doing like the Qantas CEO and in solidarity with your members, not take any payment or better still refund the $300k bonus back proportionately to each 2019 paying FPA member? That would show us that you are a true leader and actually care about those you're meant to be representing.

Guessing that there is a 100% chance he of the FPA will not reply to this post.

Add new comment