Regulatory burden is hurting client decision making

Data published by Adviser Ratings in 2022 revealed average ongoing advice fees increased 41 per cent in the three years to 2021, from $2,510 to $3,529.

Advisers have attributed a bulk of these rising costs to mounting regulatory burdens.

According to Steven Bennett, direct chief executive officer at Charter Hall, cost barriers pose greater risks amid continued economic uncertainty, with deteriorating macro conditions and market turbulence underscoring the importance of good financial advice.

“Good advice pays for itself and is well worth it over and above whatever it costs,” he told ifa.

“So, good advisers can not only invest their clients’ money well, but save them from very costly mistakes, even for example, selling the bottoms of markets instead of holding out.

“I think what various governments have done in this country over the last decade or so is continued to put regulations on top of regulation.

“Unfortunately, many regular investors who have more modest sums of capital to invest, have been priced out of getting advice.”

Mr Bennett said the regulatory landscape should be reformed to enable advisers to spend more time servicing their clients.

“Advisers are going to be a lot better in front of their clients, listening to what their needs are, than filling out form after form,” he said.

The chief executive said much of the regulation introduced in recent years has targeted a small sub-section of the advice community — punishing the majority of good advisers.

“Most advisers are good advisers, and a lot of the regulation has been tailored for a couple of bad eggs, and chances are, they’re not going to follow the regulation anyway,” Mr Bennett added.

The Quality of Advice Review (QAR) has sought to address these concerns, proposing measures aimed at streamlining the compliance process.

This includes removing statements of advice (SOAs), which independent reviewer Michelle Levy said should be replaced with a requirement to keep complete records of the advice provided to a retail client, and the provision of written advice on request.

“The objective of this recommendation is to allow financial advisers and AFS licensees to have more flexibility to provide advice in a form that best suits their customers and clients and to reduce unnecessary compliance costs,” Ms Levy said in her final report.

SOAs, she acknowledged, have been “universally criticised for being too complex and adding significantly to the cost and regulatory burden of providing personal advice”.

Ms Levy said the reform would also improve the client experience.

“[While] SOAs are intended to be consumer-focused documents (providing the information the client needs to decide whether to act on the advice) and while the content requirements are intended to be flexible in order to permit providers of advice to tailor the individual SOA to the needs of the client, they are often prepared by financial advisers with an eye on defending a complaint or claim,” Ms Levy added.

The government is yet to formally endorse the QAR’s final recommendations.