Government Reforms Spike Financial Advice Costs

Phil Anderson, FAAA's general manager for policy, highlighted that the changes to RITC arrangements coming into effect next week will eliminate the 75% GST discount on advice fees collected through a fund or platform. "Public figures indicate this could saddle financial advice clients with an extra $250 million annually," Anderson noted.

The new ASIC Cost Recovery Implementation Statement, expected to be released soon, is not forecasted to show a decrease in costs. Anderson expressed concern, citing budget announcements that indicated expenses could rise for the financial advice sector next year. "With fewer advisers and higher standards, one would think there'd be some efficiency gains to lower costs,” he added.

Stephen Jones, the Minister for Financial Services, earlier spotlighted the "Delivering Better Financial Outcomes (DBFO)" package as a means to reduce advice costs. The DBFO legislation, tabled in the Senate recently, could assist with this goal if passed. Yet, the initial Senate sitting to decide on this won't occur until August at the earliest.

A significant sticking point is Section 99FA, regarding how advice fees could be deducted from super funds. Despite criticism, the bill continues to face resistance. Anderson suggested that, although change seems unlikely, passing the bill promptly could introduce benefits like simplified fee consents and more adaptable financial service guides.

Meanwhile, the debacle surrounding Dixon Advisory keeps driving up advice costs. Clients are seeking compensation through the Compensation Scheme of Last Resort (CSLR) after Dixon entered voluntary administration. Anderson called for a public inquiry into how the Dixon scheme was allowed to operate in this manner.

"We want to ensure steps are taken to prevent another Dixon-like situation. Besides scrutinizing the CSLR, a public inquiry could dig deep into any system flaws," Anderson emphasized.

In efforts to revitalize the profession, FAAA chief executive Sarah Abood outlined two initiatives attracting new entrants—students and career changers. Additionally, an advertising campaign is set to promote financial advice as an appealing career choice.

Abood highlighted concerns about the sustainability of financial planning degrees at universities, noting the lack of relevant qualifications from top institutions. The FAAA proposed that a graduate certificate could enable “qualified advisers” to gain accreditation with just four additional units, simplifying the process for students.

Recent clarifications from the Financial Services Minister confirmed that existing AFSLs could employ qualified advisers under the same regulations as banks and insurers. "This allows practices to involve family members of existing clients, creating a more personal touch," Abood said.

However, she flagged uncertainties about the fee structures for qualified advisers, expecting costs to be lower than for full professional advisers. "We advocate against restrictions on charging. Fair competition means small firms must be able to charge for services," she clarified. During the FAAA Roadshow in May, member feedback indicated support for allowing qualified advisers to enhance overall adviser numbers, potentially sharing costs for ASIC funding and the CSLR more equitably.

Please Note: If this information affects you or is relevant to your circumstances, seek advice from a licensed professional.

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