The submission lists a number of “quick fixes” and more challenging, long-term policy solutions.
Multiple, mandatory legal documents
Chief among them is that government “re-work” onerously complex consumer-facing advice documentation.
The submission suggests a simple engagement letter could be sent laying out the scope of the advice and relevant fees and charges, rather than the multiple mandatory legal documents such as the statement of advice (SOA), financial services guide and annual advice agreement.
The regulatory framework should encourage shorter versions of SOAs – which can run to more than 100 pages long – or replace SOAs entirely with less onerous “records of advice”, the submission argues.
It also calls for changes to the law to allow for the “rationalisation, standardization and automation” of fee consent and disclosure documents.
These consent forms, required to be obtained from each client regularly before any advice can be provided, are believed to be among the key drivers of rising costs for advice businesses, which are in turn being passed on to consumers in the form of higher fees.
members in tears
FPA chief executive Sarah Abood told an industry forum last week that she received daily calls from members “in tears” due to the laborious nature of obtaining fee consent.
Many firms are expected to forfeit revenue because they will not have obtained consent from all clients before the deadline of June 30.
But any move by government to eradicate the fee consent rules would be controversial given their introduction was recommended by the Hayne royal commission as a solution to the scandal of wealth managers charging “fees for no service”.
The submission also calls for the removal of the so-called safe harbor provisions in Labor’s landmark Future of Financial Advice reforms, which lay out precisely how an adviser can demonstrate they can acted in the best interests of clients. Instead, regulators should clarify on how advisers can comply with their fiduciary duty without insisting on prescriptive paperwork, it says.
Modeling by KPMG, commissioned by the FSC last year, found the safe harbor provisions were among the main drivers of scaling costs to provide advice, which it found were actually higher than the average cost to the consumer, rendering financial advice a loss-making enterprise .
Financial Services Minister Stephen Jones has indicated the government is open to removing the safe harbor provisions and encouraging shorter or less frequent SOAs to reduce the regulatory burden he described as a “hot mess”. But he has not committed to tweaking any of the Hayne-recommended regulations such as client fee consent forms.
The submission also calls for the tax-deductibility of upfront and ongoing financial advice fees and expanding the consumer data right (CDR) regime so that financial advisers had access to existing client information from other service providers, removing the need for additional data capture.
It called for the life insurance framework reforms – which protected, but capped, commissions paid to advisers from insurance companies – to remain in place to “insure consumer accessibility to risk advice”.
Crucially, the submission argues that the Morrison government’s contentious education and ethics reforms should remain in place to give comfort that advisers should be able to apply professional judgment rather than comply with prescriptive rules.
However, it calls for more clarity on some of the sections of the code of ethics and questioned the “one-size fits all” regulatory approach, which requires specialists such as stockbrokers and life insurance advisers to effectively train as financial planners.
The Albanese government has committed to exempting advisers with more than 10 years’ experience and a clean regulatory record from obtaining a university degree – a policy it took to the federal election.
‘Fence-sitters and sycophants’
The financial services sector has been criticized by Canberra insiders for having too many disparate lobby groups and no peak body, making policy work more challenging.
But while the working group’s formation represents an unprecedented collaboration across the industry’s faction, it was criticized by some groups left out of the project.
In a note to members on Tuesday, Association of Independently Owned Financial Professionals director Peter Johnston, who was a key advocate of the education exemption for experienced advisers, said the group did not truly speak for advisers or their clients.
I have criticized the involvement of accounting groups and those linked to fund managers and financial product providers, such as the FSC and AMP-aligned Advisers Association.
“Cannot see many names that stood up for advisers when the political heat was on,” Mr Johnston wrote in a reference to rival associations’ unwillingness to criticize the previous government over its education standards. “Most were fence-sitters or sycophants.”
The Levy review will hand its recommendations to Treasury before December 16.