White paper looks at reforms for financial services

The Financial Services Council asked KPMG to assess the impact of proposed FSC reforms on the advice process, including hours, time, and cost per step of the process.

These reforms were initially part of an FSC green paper and are now a white paper published on Monday (11 October) ahead of the stated intention of the federal government to conduct a review into financial advice.

The FSC’s proposed reforms include abolishing lengthy, complex, statements of advice for a simpler, consumer-faced “Letter of Advice”. They also suggested adopting a new legislated financial advice model, clarifying and removing the currently complex labels for different types of “advice”. It is recommended advice would be billed as, simple; complex; or specialised. General information would be in a separate category.

It also included removing the best interests duty “safe harbour” steps from the Corporations Act, while retaining the best interests duty obligations and enhancing the professional code of conduct. We do not believe this will reduce consumer protection but will save costs as the research indicates.

In a separate review last year at the height of the original COVID-19 pandemic KPMG research found most people saw financial advice as a discretionary spend, while those who took financial advice saw it as essential and 70 per cent of customers (a higher proportion than for insurers or super funds) were pleased with the service.

It was with this in mind that the new research was conducted to ensure that any unnecessary costs facing financial advisers are reduced as much as possible, to increase the likelihood of more people taking advice.

But the cost of complying with rising regulatory and professional requirements has driven the cost of advice production up over the last few years.

The Financial Services Council asked KPMG to assess the impact of proposed FSC reforms on the advice process, including hours, time, and cost per step of the process.

The KPMG report, released on Monday (11 October) found that the FSC proposals had the potential to reduce the cost of advice by up to 39 per cent and cut down the time spent on creation of a statement of advice by up to a third. 

The average cost of producing a statement of work could fall from more than $5,300 to less than $3700, a possible saving of 37 per cent.

The report also found the proposed reforms could free an adviser’s time to enable them to see more clients (up to 44 more a year) or use this time for other business-critical activities such as training and business development.

KPMG researchers also looked at how technology could be used better, over time, to reduce costs. While there is no single advice solution that will unilaterally solve the advice challenge, the report stated that leveraging technology may further aid a provider to reduce the cost of advice, aiding affordability and also facilitate better, more efficient interactions between the client and adviser – aiding accessibility.