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Financial Planning

FSC advice reforms slash time, costs by 30%

The reforms proposed by the Financial Services Council could reduce the time and cost to produce financial advice by more than 30% respectively.

Modelling provided by KPMG Australia estimates that advisers incur $5334 to provide advice and spend 23.9 hours on average to do so.

Should several suggested reforms by the FSC be successfully implemented, the cost could potentially drop to $3360-$3467 or 35%-37%. Financial advisers would then only take up to 16.8 hours to produce the advice.

These reforms include removing the safe-harbour steps, which will contribute about 11% in reducing the costs. Simplifying the advice model would lead to a 9% reduction in the cost of production, while removing the Statement of Advice in place of the Letter of Advice would help reduce overall costs by 17%.

Further, adopting the changes could potentially add 44 new clients to practices per year.

The findings form part of the FSC's latest research the White paper on financial advice.

The FSC said its proposals would increase protection for up to 275,300 consumers who could be reclassified as retail clients and therefore brought into the consumer protection framework for financial advice, which is a change long sought by consumer advocates.

This would raise the threshold under which consumers are identified as retail clients to those with assets of less than $5 million (up from $2.5 million) and index the threshold to CPI.

By 2030, the FSC wants the industry to be self-regulated and a principles-based regulatory framework fully implemented. By 2023, it wants the safe-harbour steps abolished as a result of complying with the Best Interests Duty, and the Letter of Advice to replace the Statement of Advice and Record of Advice.

KPMG director of superannuation advisory, actuarial and financial risk Cecilia Storniolo said: "Anecdotally, we've been hearing for about two years that the interplay between the FASEA code of conduct, and the Best Interest Duty tests was causing the industry a great deal of angst."

Many advice practitioners KPMG interviewed highlighted examples where they are statistically meeting one of those provisions, but failing the other, she said, adding that participants believe there is merit and value in reforming the provisions.

This could either be removing the safe harbour completely or removing the safe harbour but enhancing FASEA's code of conduct

The FSC prefers the latter approach which results in a 9% reduction in cost and 7% reduction in time, Storniolo said.

Read more: FSCFASEAFinancial Services CouncilCecilia StornioloKPMG Australia