This week CPA Australia released a report called ‘The impact of complex regulatory reform’ which criticised the regulatory framework around financial advice as “convoluted” and “excessively layered”. On release of the report, financial advisers around the country muttered ‘welcome to our world’ and wondered whether the CPA criticism would help lead to ‘better’ regulation across the whole industry – or just to carve outs for accountants.
The financial planning policy adviser for CPA Australia, Keddie Waller, said the report would provide CPA Australia with a basis to start lobbying to simplify the regulatory framework. From a holistic point of view – this criticism may benefit advisers currently struggling under the regulatory burden, but if the lobbying took the form of simple carve outs to benefit accountants only, it would be an opportunity lost for the advice industry. A carve out option is feared because among several recommendations to tackle the problem of “over-regulation” the report recommended redefining product advice so that an accountant can provide general strategic planning advice.
The report highlighted that that 34.6 per cent of accountants who offer financial planning advice are considering cutting down on the number of services they offer, while 12.5 per cent are considering ceasing operation altogether due to the regulatory burdens imposed on the industry. Accountants can currently provide SMSF-related (and ‘class of product’) advice under a limited license provision, which is cheaper than a full licence. However, Waller said it “hasn’t been the success it could have been” because the time and cost to provide the advice is still too prohibitive. To give more comprehensive advice, Waller said accountants can potentially require up to four more licences with a potential cost of over $110,000 per year.
In a statement that would no doubt resonate with many advisers, Waller said “Accountants feel like they can’t actually charge what it costs for them to give advice…. It ends up becoming a loss leader for them.” Considering that accountants have other revenue streams to potentially fall back on, this statement should bring the costs associated for dedicated financial advisers into sharp relief.
Industry estimates a loss of up to 30 or 40%% of financial advisers industry wide – mainly due to pressures (time and cost) associated with the new qualification and regulatory regimes – along with existing and potential changes to adviser remuneration.
The report notes this loss and says the accounting profession “has an opportunity to supply new financial planning advice capacity” to a growing unmet advice need. This opportunity, however, is being hampered because “professional accountants find themselves restricted by the current regulatory framework from providing such services”.
While speaking specifically on behalf of accountants, many of the regulatory and compliance issues outlined in the report are nothing new to financial advisers. Given the CPA speak for a membership of over 160,000, it may have considerably more lobbying muscle than that of its financial advice brethren. Many in the advice industry would consider it a shame if the proposed recommendations of the CPA were listened to and belatedly (as far as advisers are concerned) acted upon in a manner that was too late to help advisers currently struggling with many of the same problems.