Ongoing fee consent changes don’t go far enough: Adviser

Announcing the first tranche of the legislation for the government’s Delivering Better Financial Outcomes package of reforms in November, Financial Services Minister Stephen Jones said it would remove onerous red tape that adds to the cost of advice with no benefit to consumers

“There should be a capacity for them [advisers] to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that,” Mr Jones said.

Despite the notable absence of statements of advice (SOAs) from the first tranche, he hinted that the ball is now in the advisers’ court regarding possible cost reductions, with the government said to have delivered on its promise.

“Advisers have been saying for some time now, ‘If you reduce the red tape, we’ll be able to provide more affordable services’. We’re going to reduce the red tape, over to you.”

In a submission to the government’s consultation on the first tranche of Quality of Advice Review (QAR) legislation, Steve Melling, managing director of Paul Melling Retirement Planning (PMRP), said that the administrative burden remains.

“It is not clear what objective is served by removing fee disclosure statements but retaining endless fee consents. The result is simply a shortening (or perhaps the removal of one page) of the documents that must be produced, sent out, signed, and returned by each retail client each year,” Mr Melling said.

“The administrative burden on the client is not reduced by removing a few ‘FDS’ lines from annual fee consent documents. The administrative burden on advisers, licensees, and super funds is not materially reduced by this action.”

According to Mr Melling, the draft legislation will do little to increase the accessibility of advice beyond high-net-worth clients.

“What will of course continue to happen is that financial advisers will continue to service only ‘higher net worth’ clients, whose higher balances can generate the higher fees required to justify the ongoing administrative burden,” he said.

“Furthermore, and incredibly, investors who qualify as wholesale by having substantial investment portfolios will continue to be exempt from this burden.

“The minimum fees applied by retail financial advisers will continue to increase – ensuring that lower balance clients will not be able to afford an adviser.”

Following the announcement of the draft legislation in November, Financial Advice Association Australia chief executive Sarah Abood welcomed the consolidation of fee consent documents.

“Delivering on this recommendation will save many hours of frustrating, inefficient, and unnecessary work for both advisers and their clients and we are very happy to see this included in the first tranche of legislation,” Ms Abood said.

Earlier this year, PMRP founder Paul Melling argued for age and fee exemptions on the current requirement for annual “opt-in” fee consents that advisers who have ongoing fee arrangements with their clients are obliged to seek.

Mr Melling’s suggestions were: “To allow financial advice clients over a certain age the ability to ‘opt-out’ of the annual opt-in fee consent requirements. We suggest age 70-plus (or even from age pension age) but certainly no client over 80 years of age should be forced to comply with this burdensome administrative paperwork regime.

“To allow financial advice clients whose (fixed) annual advice fee is less than a dollar threshold the ability to ‘opt-out’ of the annual opt-in fee consent obligations, we suggest $2,400 p.a. or $200 per month as a threshold.”