The financial service council unveils plan to cut cost of financial advice by

The Financial Services Council has unveiled a plan to wipe almost $2000 from the cost of providing financial advice to a client.

The Financial Services Council has unveiled a plan to slash the cost of financial advice

The peak body for the financial services industry has unveiled a plan torevitalise the struggling advice industry by moving to a self-regulation model by the end of the decade, proposing a raft of initiatives that could see the cost of receiving advice slashed by more than a third.

On Tuesday the Financial Services Council (FSC) released a White Paper on Financial Advice outlining steps to simplify the industry’s regulatory regime over the next nine years, ahead of an interim report on Financial Services regulation by the Australian Law Reform Commission due out next month.

FSC chief executive Sally Loane said the current regulatory framework was pushing up the cost of advice.

“Current regulations prescribe compliance obligations at every step of the advice process,” she said.

“They are an unprecedented driver of cost for financial advisers and consumers, and are past their use-by date.”

Among the major reforms proposed are a push to abolish the safe harbour steps in the best interest duty, introducing letters of advice to replace the more complex statements required to be given to clients, and abolishing records of advice and simplifying categories of advice.

KPMG modelling of these three key provisions shows their implementation could reduce the cost of providing financial advice from $5334 to $3466 per client.

Financial Services Council CEO Sally Loane.Picture: Hollie Adams

The modelling also shows making the changes would reduce the time of providing advice to clients by 32 per cent and allow advisers to take on an additional 44 clients every year.

The whitepaper also recommends that the asset threshold under which consumers are classified as “retail clients” be moved from $2.5m to $5m and indexed to inflation, which would move more than 275,000 current wholesale clients under consumer financial advice regulation.

KPMG superannuation advisory, actuarial and financial risk partner Cecilia Storniolo told a Financial Services Council event on Tuesday that the reduction of time to provide advice would be the main driver in bringing down the cost of advice.

“All the reforms indicated that there would be a reduction of time,” she said.

“Advice is a people business … so if any reform measure can actually reduce the cost of producing advice, there is a cost saving to that advice business, per piece of advice you should acquire.”

Growing regulatory complexity and the fallout of the Hayne royal commission into misconduct in the financial services industry has seen advisers leave the industry in droves, pushing up the cost of advice.

It is estimated that the number of licensed advisers will fall from around 20,000 to 15,000 in the next few years, raising concerns that financial advice will become a luxury reserved for the wealthy.

Financial Advice leader at Mercer Australia Susie Peterson said consumers were not willing to pay break-even prices for financial advice, highlighting the need to reduce industry costs.

“The average person looking for advice thinks they should have to pay $300 to $500 to get advice, well, you just cannot produce advice at that price in a comprehensive advice business.”

The KPMG modelling shows that removing the safe harbour steps – a way for an adviser to prove they have acted in a client’s best duty by detailing how they complied with seven steps through the advice process – could reduce the cost of advice between 9 per cent and 11 per cent

A move to simplify categories of advice could reduce costs by 9 per cent and replacing the complex and legally mandated statement of advice to clients with a simpler letter of advice alternative could slash costs by 17 per cent.

Reforms to be achieved after 2026 but before self-regulation of the industry by 2030 include a push for accreditation to be conducted by universities, a recognition of prior learning and equivalent pathways and the introduction of a practising certificate.