AFA’s Opening statement – Parliamentary Standing Committee on Economics
AFA News 29 July 2021. The Association of Financial Advisers (AFA) National President, Michael Nowak, Vice President, Sam Perera and Acting CEO, Phil Anderson today appeared before the Parliamentary Standing Committee on Economics.
Thank you for the opportunity to present to the Committee. My name is Michael Nowak and I am the President of the Association of Financial Advisers. I am a practising financial adviser.
I am here with my colleagues, Sam Perera, another practising adviser who is the AFA National Vice President, and Phil Anderson, who is our Acting CEO.
The AFA is a professional association for financial advisers. We have over 3,600 members, the majority of whom are small business financial advisers. Our vision is to empower financial advice professionals to transform the lives of Australians through quality financial advice.
The financial advice profession has faced a barrage of reform over the last decade and there is more to come. Routinely, the implementation of one reform is not completed before the next reform is introduced, even before it is established whether the last reform has worked. The result is that financial advice has become increasingly difficult and costly to provide, it has become excessively complex, over-regulated, and it is becoming out of reach for many Australians.
Further, many of the remaining small business financial advisers have lost the passion and commitment to continue, with many suffering from mental health issues. The bottom line impact of all of this is that financial adviser numbers have fallen from nearly 29,000 at the time the Royal Commission final report, to just over 19,000. Financial advisers have left the profession in droves, resulting in loss of employment for them and their staff, and also their clients losing their financial adviser.
Financial advice is a people business. Advisers are great at helping their clients understand their personal and financial goals and setting plans to achieve them. The increasing compliance burden means that they are spending less time with their clients. Equally important, the mental health of financial advisers has also been impacted significantly. A study by Dr Adam Fraser and Deakin University this year, entitled Australian Financial Advisers Wellbeing Report, found that 73% of advisers were experiencing high levels of burn out from work, and 67% have experienced some level of depression. When compared to the average Australian, financial advisers’ mental health is significantly worse, with 11% of the surveyed group being categorised as being in a very high mental health risk.
We understand that broadly the trust and reputation of financial advice is in the process of rebuilding and we are committed to this. Our message is that a balance must be re-established between regulation and consumer protections to ensure that financial advice remains viable to the average Australian.
The Missing Voice – Existing Clients
We believe that the system is now broken, and the most critical impact of all of this is that financial advice has rapidly become inaccessible and unaffordable for everyday Australians. This is a bad outcome for all Australians, and we know that the Government and the regulators are aware of this.
Those who are critical of financial advisers have often handed out broad criticism and generalisations across all advisers, impacting the vast majority who are always doing the right thing. The voice that is missing is that of the existing clients who are not asking for the additional layers of complexity, bureaucracy and cost that have been forced upon them due to these overwhelming changes.
Recent research conducted by Core Data entitled “The True Value of Advice Report”, is the largest research conducted being on 12,600 advised clients. This report demonstrated that these advised clients:
- Are fundamentally better off than unadvised consumers in a range of both tangible and less tangible measures regardless of their gender, age and wealth.
- Exhibit a high level of financial well-being, reflected by their preparedness for retirement, and have a low tendency to worry about money
- Highly regard and trust their advisers.
Good financial advice has a positive impact on society. For example, last year financial advisers assisted to deliver billions in life insurance claims to Australians – supporting families and individuals in need and also providing a massive contribution to the Australian economy. Each and every day, financial advisers are playing a valuable role in supporting Australians to build, protect and manage their wealth. This has never been more important than during the experience over the last 18 months with the COVID 19 pandemic.
Financial advice has been impacted by scandals in recent years and no doubt there will be some amongst you who will say that the Banking Royal Commission proved the point that further reform was necessary. When viewed more closely, it is evident that most of the focus of the Royal Commission was on the conduct of institutions, not small business financial advisers, who now account for the vast majority of all advisers. The 2020 AFCA complaints statistics show that complaints against financial advisers made up 1.4% of the total 70,500 complaints it received. This demonstrates that the vast majority of advisers are doing the right thing and are respected and valued by their clients.
The Royal Commission never heard from, nor commented on the majority of advisers who are highly professional and ethical, nor their clients. Neither did we hear how quality financial advice changes people’s lives through the provision of financial security, emotional and psychological benefits and a plan to help Australians attain the lifestyle that they strive for.
I would like to use this forum to express our concerns about how the Royal Commission reforms have been driven through without adequate consideration of the consequences and neither Regulation Impact Statements, nor the cost to industry has be assessed. On behalf of all the financial advisers in Australia I can tell you that the impact of these reforms has been significant – costs to serve has risen, adviser numbers have dropped and the balance to achieve greater consumer protection has not been sufficiently weighed against the barriers these reforms have placed to people being able to obtain advice.
The Cost of Financial Advice
I would also like to provide some detail on the increasing cost of financial advice. Financial advisers need to pay a licensee fee each year, for many $70,000 or more. Professional Indemnity insurance premiums have also increased significantly, and the policy excesses have increased. The levy that advisers pay to ASIC has more than trebled to $3,138 in the last three years. Seemingly small business financial advisers are continuing to pay for the legal action taken against the large institutions following the Royal Commission, despite the fact that all of the four big banks have exited financial advice.
This is an extraordinary burden to expect small businesses to bear. Remarkably there is more legislation driving significant additional costs for small businesses in front of Parliament at this moment.
Thank you for the opportunity to address this Committee. I would like to close by reiterating our absolute commitment to advancing the professional standing of the Financial Advice community. However, unless the fundamental issues in the policy settings can be addressed, and a balancing of consumer protection and regulatory efficiency reached, Australians will continue to lose access to a very important and beneficial professional service; affordable quality financial advice.
We are happy to answer any questions.