‘Why should we trust the FSC?’: Industry reacts to new proposed advice framework

The paper outlines a model that could reduce the cost of advice by almost 40 per cent (near $2,000) through recommendations that include abolishing the safe harbour steps for complying with the best interests duty and removing “complex” SoAs in favour of a letter of advice.

An analysis of the recommendations by KPMG found that the cost of providing financial advice would be reduced from $5,334 to $3,466, would save advisers up to 32 per cent of time when dealing with clients and allow them to provide advice to an additional 44 new clients each year.

Synchron director Don Trapnell said the group supports any initiative that aims to reduce costs and relieve compliance burden. However, he questioned the motives of the FSC and cited its life insurance framework (LIF).

“However, and this is perhaps more of a problem than the FSC is willing to recognise, the question on the lips of many risk advisers is — why should we trust the FSC?” Mr Trapnell said.

“We still believe LIF was predicated on a lie, a lie that a culture of churn existed among advisers when there was scant evidence of it.

“It was championed by the FSC whose members, to this day, are primarily fund managers, superannuation funds and life insurers. Advisers are right to question the FSC’s motives.”

Mr Trapnell also criticised the paper’s lack of recognition to separate risk advisers and financial planners, saying “it doesn’t make sense for them to hold the same qualifications or have to commit to the same educational program”.

Meanwhile, The Advisers Association (TAA) CEO Neil Macdonald threw his support behind the paper, saying it has the potential to deliver better outcomes for both advisers and clients.

“We are particularly pleased to see the FSC’s call for the separation of product and advice,” Mr Macdonald said.

“This would represent a giant leap forward, as in practice it would mean only licensed financial advisers would be able to give financial advice.”

Mr Macdonald said the blueprint comes at an important time for the sector which has endured rising costs and compliance and, in turn, has also impacted consumers.

“The cost of providing financial advice, the onerous review requirements and the application of black letter law in relation to fee disclosure statements have made the delivery of advice too unwieldy and far too expensive,” he said.

“We can and we should do better than this.” 

Earlier, Financial Planning Association of Australia (FPA) CEO Dante De Gori said the proposal should be acted on ahead of the government’s implantation of the Better Advice Bill next year which will expand the role of ASIC’s existing Financial Services and Credit Panel to operate as the single disciplinary body for financial advisers.

“With the government’s intention to introduce a single set of standards for the financial planning profession, we believe now is also the time to prioritise the establishment of a principles-based professional and ethical advice model, as opposed to the current ‘tick-a-box’ rules based approach to compliance under the existing regulatory framework,” Mr De Gori said.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.