Lack of advice a ‘macro policy issue’

The economic impacts of COVID-19 and the early release super scheme are highlighting the fact that consumers are more in need of professional financial advice than ever before. But the massive costs of compliance mean they won’t be getting it – and that could have nationwide consequences.

“Those consumers who have less savings have a greater need for advice going forward than those with greater savings, but they will not be able to afford it,” AIOFP executive director Peter Johnston told a virtual meeting attended by federal MPs.

“Considering the nation’s total welfare bill is currently 35 per cent or $191.8 billion of government total spending pre COVID/NDIS, future taxpayers need a well-advised population to mitigate these financially frightening circumstances going forward.”

The AIOFP holds that the cost of advice has tripled over the past three years to $4,500 per single person or couple to cover the compliance regime, with around 50 per cent of that being paperwork duplication and other costs that advisers have no choice but to pass on to clients.

Nathan Rees, former NSW premier and assistant national secretary of the Financial Sector Union (FSU), echoed the points, saying that the “onerous nature” of the compliance regime means there will be “a dearth of good quality professional advice for ordinary Australians”.

“What that ultimately means is that those people who remain providing advice will gravitate towards the high-net-worth individuals, and mums and dads who have either just taken a redundancy or who have retired from work at a point in their life when they’re a) elated at the prospect of retirement, b) wealthier than at any other point in their life, but c) at the most vulnerable point in their life won’t have access to a pool of advisers who can give them professional steer,” he said.

“This is looming as a macro policy issue for the nation.”

And while the findings of the royal commission continue to weigh on the reputation of the financial advice industry, Mr Rees believes the regulatory response has gotten out of control.

“There’s been rogue operators,” he said. “There’s no question about that, and we need to run them out of town. But the pendulum has swung too far the other way.”