The Financial Planning Association has warned the federal government that overly-complex reforms don’t help consumers and only serve to make financial advice more expensive and difficult to access.
In a statement released this week, the Association says financial advice is already unaffordable for many Australians and the reforms recommended by Commissioner Hayne could make this worse if they are applied without commonsense.
“The cost of regulation and lack of time are the biggest challenges for members, according to the latest FPA member survey for 2019,” the statement says.
FPA CEO, Dante De Gori, says there is a direct relationship between the rising cost of regulation, time constraints on financial planners and the ability of Australians to access advice.
“In 2019, 41.4 percent of our members said reducing the cost of providing advice would be a major challenge, up significantly from 25.3 percent in 2018,” he says.
The statement says that on average, FPA members charge $2,671 to prepare a Statement of Advice for new clients, up almost 10 percent from $2,435 in 2018.
“These figures provide an important context to our submissions to Treasury regarding the Royal Commission recommendations,” De Gori says.
… the cost of regulation and time constraints have become a major issue …
“What our members are telling us is that the cost of regulation and time constraints have become a major issue for them and their business. While we broadly agree with the draft legislation on the Royal Commission recommendations, we do have real concerns for both the profession and consumers who we are seeking to serve.”
More specifically the statement pointed to:
Ongoing fee arrangements where Recommendation 2.1 “changes the biannual opt-in requirement to an annual requirement, adds additional elements to the FDS framework, and requires consumers to annually authorise fees collected through financial products”.
While the FPA says that in principle, it supports these recommendations, it has highlighted several practical concerns.
“Simply replicating the existing opt-in provisions and product authorisation requirements on an annual basis is an inadequate solution to implement the recommendations made by Commissioner Hayne.
“Consideration needs to be given to the amount of paperwork clients are going to need to sign, the administrative burden the proposed drafting will create, and the rigid time frames it will impose,” the statement says.
The FPA has recommended that financial planners are able to renew ongoing fee arrangements with their clients up to 90 days before the notification date without resetting the anniversary date of the agreement.
“The FPA has additionally pointed out that a 12-month transition period for pre-FoFA clients (rather than the recommended six-month transition period) would give financial planners more time to review their clients and better manage the ongoing review process for their client base.
“There is a risk that our members, who have told us that they are already facing major time constraints, will be unable to cope with the bottleneck of client reviews in a six-month timeframe,” De Gori says.
“We strongly advise government to appreciate the time financial planners require to adhere to these recommended reforms while also seeing their clients, meeting their education requirements and running their businesses.”
Reference Checking
As to reference checking, FPA says recommendation 2.7 will establish a compulsory scheme for checking references for prospective financial planners. While it supports this, it believes reference checking should be extended beyond financial planners.
De Gori says there is a risk that those who don’t provide financial planning services but have influence over the financial planning process can move freely around the sector.
“To prevent this from happening, the FPA is recommending that reference checking is broadened to include those in managerial and supervisory roles, including directors and responsible managers.”
Breach Reporting, Investigation and Remediation
On breach reporting, investigation and remediation, two recommendations will strengthen breach reporting requirements for Australian financial services licensees.
“Recommendation 2.9 will require AFS licensees to investigate misconduct by financial planners and appropriately remediate clients affected by the misconduct.
“The FPA supports these recommendations but believes they can be simplified to reduce the administrative burden on financial planners,” the statement says.
“The recommendation to strengthen breach reporting effectually creates two regimes; one for breaches before 1 April 2021 and one for breaches after that date,” De Gori explains.
He says that “a single regime would simplify this by removing the transition arrangements, which would still provide adequate breach reporting requirements in the spirit of Commissioner Hayne’s recommendation”.
Disclosure of Non-Independence
The statement says that the Government has released draft legislation to require entities (a financial services licensee or authorised representative) who are authorised to provide personal advice to a retail client to disclose in writing to the client where they are not independent and why that is so.
“The FPA supports the current definition of independent contained in the Corporations Act as an important consumer protection mechanism, along with the protection of the terms Financial Planner and Financial Adviser. For this reason, the FPA supports the proposal to add a disclosure to the financial services guide obligations.”
What has this article got to do with Life Insurance Advice?
Even in the context of holistic financial advice, if I’m the Government reading this article, I would be thinking what is he talking about, plain English please?
FPA fails to represent their members again.
Be careful of what you wish for.
That should have been and continues to be relevant today when negotiating with Government, who never have understood the intricacies of the Private sector and Public servants whose livelihoods rely on complexity.
Then throw in Lawyers and complex unreadable regulations that no-one, including most Lawyers and politicians understand and we end up where we are today, a total fiasco.
The FPA are trying to make sense of the maze and find workable solutions, though the FPA were instrumental in helping to create the basis of what we face today.
There was no-one with sufficient experience and knowledge all those years ago, who actually understood that the purpose of Government has never been about fixing issues, it has always and will always be, about ” being seen to fix issues.”
Politicians have limited knowledge and very little time to understand anything, so the standard fix all solution of having, “ongoing consultations”, that lead to investigations and Royal Commissions with fixed terms of reference, is designed to appease the media and the masses.
So, what do we do to remedy the mole hills?
The Government turns to Lawyers and Public servants, who preside in their Ivory towers and whose specialty is to turn mole hills into mountains of grief.
In life, just as in Business, there is a right way, a wrong way and a convoluted way to look at issues and make corrections, so the mole hill is a slight inconvenience, not a road block.
What the Government ends up doing, is taking advice from the very people, whose sole purpose is to create confusion and unnecessary angst and once this is achieved, they can then build upon their fiefdoms to create what we have ended up with now.
Unworkable road blocks, that destroy innovation, growth and the ability for Australia to push ahead.
Instead, we end up with a million new jobs in compliance and auditing, though the last time I looked, Lawyers, compliance and auditing have never created anything, except job security for themselves and anchors around the necks of everybody else.
So, the FPA and AFA and all the other representative bodies whose job it is to lobby on behalf of your members, the first and most important rule you need to remember, is your educating and negotiating, falls on deaf ears.
Try something different and attack assumptions and demand in writing,
What is the issue?
Why is that an issue?
What real and verifiable proof do you have?
What is the real impact, not a perceived impact of acting on this issue?
Will the cure be worse than the illness?
How will your supposed remedy impact society and the economy?
Start the negotiations with these questions and we may be able to find solutions that are easy to recognise and resolve.
FPA are and have always been out of touch….. how many times does he want to say “The FPA supports these recommendations” my god for a governing body for Financial Planners I think we need to go find a child minding service to represent us…. We would have more chance of winning a fight cause we sure as hell will lose the war with FPA behind us….
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