The objective was to seek information from industry participants on the issues and impediments that exist around them delivering affordable personal advice, and that are within ASIC’s power to address.
Previous research undertaken by ASIC and various other stakeholders indicates that consumers want better access to good quality, limited and affordable advice, but that many advisers and licensees find it challenging to provide this type of advice at an affordable price.
So, we know that demand exists but the supply-side needs to be addressed. According to research cited in CP332 (page 20), a significant price gap exists between what consumers are prepared to pay for advice and what it costs advisers to provide the advice. “A number of sources estimate that the average cost of comprehensive personal advice in Australia is between $2,600 and $2,900.
This is unaffordable for many consumers and more than they are willing to pay. For example, in 2019, Investment Trends reported that financial planners estimated that the average cost for full or comprehensive advice was $2,900. For more limited advice, they estimated $1,500. The average cost that consumers were willing to pay for the initial advice consultation with a financial adviser was $340.
The maximum amount that consumers were willing to pay for comprehensive personal advice was $550”
Exiting financial advice sector
Given the difficulties in providing advice at a profitable or even viable price, it is not unexpected that many advisers have chosen to exit the space. This also applies to IPA members, and it is extremely concerning to see the rate of decline in adviser numbers. It is also ironic given that qualified accountants are well placed as trusted advisers to provide advice to clients and to assist in meeting the growing demand for affordable advice. In this regard, IPA continues to advocate a preferred model for the provision of financial advice, which would satisfy the demand and supply sides.
According to our own internal data, approximately one-quarter of IPA members who hold Professional Practice Certificates also hold full or limited financial services licences or are authorised representatives of licensees. From 2018 to 2019 there was a reduction of 12 per cent in the number of IPA members who were licensed or authorised to provide advice.
More specifically, there was a 16 per cent reduction in full licence holders and an 8 per cent reduction in limited licence holders.
Data for the 2019 to 2020 year will be available shortly. However, based on anecdotal evidence from members and from the CP332 survey, we anticipate that the trend will continue with further reductions. The 2019 data further supports this with evidence that the income derived from financial advice (overall) is diminishing across all license types and also for authorised representatives.
The survey results indicate that the overwhelming response to the question of impediments to accessing affordable advice for consumers is that compliance is the main driver of cost in providing advice. And that meeting these compliance costs is making it unprofitable to provide advice to a cohort of consumers who will not pay what it costs for this advice. A significant rebalance is needed if the unmet advice needs of consumers is to be satisfied.
However, this is a challenge which needs a holistic solution, and which cannot be solved by ASIC alone. In this regard we acknowledge that CP332 states that ASIC will pass on feedback and comments on suggestions for law reform to the government. IPA believes that to seriously tackle the affordability issue that compliance requirements will need to be changed in terms of legislation, regulation, interpretation and implementation.
We appreciate that ASIC’s role is in interpreting, implementing and enforcing the legislation and regulation, which are developed and decided by Treasury and the government.
However, fees such as those imposed by the ASIC industry funding model, are within the control of ASIC and are part of the increasing cost of doing business suffered by many IPA members and other advisers. There will be a lot more to be said on the ASIC industry funding model and IPA has joined with the other professional accounting and financial planning associations to advocate for review and reform in this area.
In the meantime, we are hopeful that consultation on CP332 will result in meaningful change for the sake of all consumers.
For the full IPA submission to ASIC on affordable advice to consumers refer to the IPA website: www. publicaccountants.org.au
