FPA chief Sarah Abood calls for changes in advice system to prevent exodus of financial planners

Major changes to laws around provision of financial advice are needed to prevent the continued exodus of advisers from the industry, the Financial Planning Association has warned.

Financial Planners Association chief executive Sarah Abood.

Major changes to laws around provision of financial advice are needed to prevent the continued exodus of advisers from the industry, the Financial Planning Association has warned.

In an interview with The Australian, FPA chief executive Sarah Abood called on the federal government to consider implementing changes recommended in the Quality of Advice Review by Allens partner Michelle Levy or risk further departures from the sector, which have seen the number of advisers slump from more than 28,000 in 2019 to below 16,000.

The government is expected to release the final report – which it received in December – as early as next week, ahead of further consultation with the sector and other groups over its recommendations.

A report issued this week by online industry website Adviser Ratings says almost one in four of the existing advisers were thinking about leaving the profession, despite the thousands of departures in recent years.

“We need a lot more financial advisers to provide the advice to the number of consumers who want it and need it,” Ms Abood said. “When you compare the numbers of below 16,000 advisers to the 16 million Australians of working age, the numbers are nowhere near what is required.”

She said the FPA was “very supportive” of the bulk of the recommendations in Ms Levy’s draft report issued in August.

The biggest reason planners were still talking about leaving the profession was excessive regulations and red tape that regularly resulted in them being forced to produce Statements of Advice of more than 100 pages for clients, Ms Abood added.

She said adopting reforms such as those expected to be contained in the final version of the Levy report was the biggest single thing that could be done to prevent more exits from the profession.

“(Ms Levy) is of the strong view that marginal or incremental change (to the current law) is not going to solve the problem,” Ms Abood said.

“We think there are ways that the recommendations could achieve the goals of providing more affordable and accessible advice without endangering the quality of advice that is given,” she said. “We are really keen to see the final proposals.”

The review into financial advice was recommended by the Hayne royal commission, commissioned by the previous Coalition government and which heard extensive tales of mal­practice.

Ms Abood said one factor driving exits from the industry had been the introduction of stricter education standards and new ethics tests that came into effect last year. But she said the other factor was the excessive regulatory burden on advisers under current legislation.

“It is extremely complex, difficult and time-consuming to provide advice to people at the moment,” Ms Abood said.

“There is a lot of bureaucracy and red tape. The big hope of ours from the Quality of Advice Review is that a lot of those overwhelming levels of regulation will be taken out.”

A report issued this week by Adviser Ratings said 11 per cent of advisers surveyed said they were planning to leave the sector this year, with another 12 per cent unsure whether to stay or go.

The report said 90 per cent of advisers surveyed said they were being forced to increase their prices because of rising compliance and insurance costs as well as general inflation.

Adviser Ratings is predicting that adviser numbers will slump further to about 13,000. But it says potential regulatory changes following the Quality of Advice Review could see the numbers “gradually start to recover” after hitting this low point over the next few years.

The recommendations in the Levy report and the government’s response are being closely watched by other players in the ­financial sector, particularly superannuation funds, which are set to play an increased role in providing advice to their members if the regulations are eased.

Association of Superannuation Funds of Australia chief executive Martin Fahy said his organisation had “long been ­focused on increasing education and awareness of the positive difference that high-quality, affordable financial advice can make to retirement outcomes”.

“The current advice frameworks are complicated, and not always fit for purpose,” he said.

“We are optimistic that the review and the subsequent minister’s response will pave the way for much-needed clarity and deliver enhanced retirement outcomes for super fund members.”

Jason Andriessen, consulting partner with financial services consulting firm MYMAVINS, said superannuation funds were “poised for action” if the regulatory environment behind the provision of financial advice was changed. “The large super funds have been investing in the data capabilities for years now (and) have established internal teams to make the most of the rich data points about their members,” Mr Andriessen said.

“What’s missing is a regulatory framework that allows funds to have sensible conversations with their members without losing themselves in hours of ­bureaucracy associated with the provision of personal advice.

“The Levy Quality of Advice Review may be the answer.”

He said super funds were well placed to expand their role in providing more financial advice given their strong ties with members, with retirement being one of the biggest single times of need for advice.

The review is also expected to pave the way for an increased ­application of technology to the advice sector. Craig Keary, the Asia-Pacific chief executive for financial planning technology company Ignition Advice, said the Quality of Advice Review could give the ­financial planning industry the certainty it needed to accelerate the use of technology.

“The current laws don’t prohibit it (the use of technology and digital advice) at the moment, but given the way that Michelle Levy has included technology in her (interim) report, it could give the industry the confidence it needs (to invest more in using technology),” Mr Keary said.

He said the financial advice sector in Britain and Europe had been adopting more technology in their businesses so it could service more clients.

“The patterns and trends that we have seen playing out in Europe and the UK are playing out here,” he said.

Simon Swanson, CEO of listed wealth company ClearView, said the review provided a “very good base” to achieve the objectives of making financial advice more ­accessible and affordable. “By recommending simplification of the advice process it will change the market for the positive as it will allow more Australians to receive advice tailored to their needs at a lower cost,” Mr Swanson said.