Recent changes to profession pushing up the cost of advice: FAAA

Speaking on Ausbiz on Thursday, Financial Advice Association Australia (FAAA) chief executive Sarah Abood said despite both sides of politics stating a desire to improve the cost of advice for Australian consumers, everything that has happened over the last 12 months has had the opposite effect.

“[The cost of advice] has been a problem for a while and this is something that both the government and the Coalition want to do something about,” Abood said.

“But unfortunately, it feels a bit like many of the things that have changed in our profession in the last year are actually acting to drive up the cost of advice even further.

“We think it’s very important that advice be accessible at all different price points to Australian consumers. So, we’re really focusing on getting the cost to produce advice down because we think that’s a great way to make advice more affordable.”

The compounding impact of increasing and new levies, additional registration requirements, and the ballooning cost of operating a business are all happening against a backdrop of legislation being introduced with a purported goal of improving access to advice.

Whether this will actually happen is something many within the sector are becoming increasingly sceptical about, as the measures are introduced at a snail’s pace and the more impactful areas are held back.

According to Abood, the latest hit of the Compensation Scheme of Last Resort (CSLR) levy, imposing an additional $1,200 on every adviser, is yet another challenge on the affordability of advice.

“In principle, it’s a great idea. The Compensation Scheme of Last Resort actually officially launched just last week, so it’s very new,” she said.

“What it will do is give assurance to consumers that if something goes wrong, if they have a case against a financial advice firm, or another kind of financial firm, where the firm can’t pay because they’ve gone bankrupt perhaps, there is some recourse. This scheme will provide recourse to consumers who’ve had a complaint held out that the firm wasn’t able to pay, so that’s good.

“The challenge is the way it’s being funded, because this scheme is launching with a whole lot of legacy complaints, kind of weighing it down.”

The FAAA has been consistent in its argument against the retrospectivity of the CSLR, previously arguing that the combination of the Dixon Advisory “black swan” event and a shortened government-funded initial period has had a “highly retrospective and negative effect”.

“The issue for financial advisers today is they’re being asked to pay now for things that happened in the past,” Abood said.

“And these are not the financial advisers that did anything wrong. This is about past cases. So that number is going up just in that first year of the scheme in which advisers will be paying over $1,200 per adviser, every adviser, and it’s likely to go up.

“We think it’s really important that we get this scheme set up in a sustainable way and that it’s not contributing to the further increases in the cost to provide advice.”

She added that the only way a scheme such as the CSLR makes sense is if it is “forward looking”.

“If there are determinations that have been made in the past, that relate to failures that happened in the past, they shouldn’t be funded by the compliant financial advisers of today.

“The theory of schemes like this is that the profession itself will act to ensure that no future problems emerge or that when they do, they can be kept under control and caught early.

“But, of course, we can’t do anything about things that have already happened. So, the key issue with the CSLR in our view is that it shouldn’t be retrospective, it should be forward looking.”