In response to "widespread concern" regarding the flood of advisers leaving the industry and its effects on the overall affordability of advice to consumers, ASIC has opened consultation on how it and (remaining) industry participants can collaborate on a better way forward.
Noting that the number of advisers on the Financial Advisers Register has dropped 14.6% below the long-term average as at 5 November 2020, ASIC intimated this was likely related to the commencement date of many of the reforms in the Corporations Amendment (Professional Standards for Financial Advisers) Act 2017. While these reforms are geared towards "[improving] consumer outcomes and [increasing] public confidence," ASIC explained, the shrinking size of the advice industry is creating supply and demand issues.
Commenting on the launch of the new affordable advice project, ASIC commissioner Danielle Press said: "Good-quality affordable personal advice may help consumers make better financial decisions, especially during times of heightened vulnerability."
Indeed, the need for financial advice in circumstances where COVID-19 has thrown the world economy into chaos – and even before that, where the average Australian was already set to outlive their money by 11 – has become increasingly apparent, as highlighted extensively in the new season of Secrets of the Money Masters.
But with a smaller number of advisers available, many of whom are struggling to increase per-client margins, how are Australians going to get the advice they need? According to ASIC’s new project, one of the key solutions is the provision of limited advice.
In its own research from 2019, ASIC found that people tend to seek financial advice as a result of specific "triggers", including life stages such as starting a family or retiring and deciding whether to, say, use their savings to renovate their home or invest. The regulator also referred to Investment Trends research from the same year, which found that 38% of "potential client" participants preferred piece-by-piece advice models.
In its consultation paper, ASIC more or less acknowledged there was nothing particularly novel about this solution to the affordability problem – indeed, the regulator said it "has been keen to promote access to good-quality limited advice to consumers," and has attempted to provide guidance on how advisers can do this via guidance in RG90 and RG244.
However, it appears this hasn’t been particularly effective. As ASIC noted: “Our ongoing discussions with industry participants have revealed that many financial advisers and advice licensees remain uncertain about how they can provide compliant limited advice.”
ASIC suggested this could be because the regulatory requirements for the provision of limited advice are not well-understood in the industry and may require further clarification. And as a result of this perceived lack of clarity, “some advice licensees have restricted their financial advisers from providing limited advice to consumers.”
This consultation paper forms part of ASIC’s strategy to remedy these issues, and the regulator is looking for feedback from advisers and licensee groups as to what else can be done. You can participate in the consultation here.
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