Advisers have called for “bold and fundamental changes” to the legislative and regulatory framework governing the sector, including the classification of advice into either general information or personal advice.

A consultation paper launched today by the Financial Services Council (FSC) says the current setup has far too many “unnecessary layers of regulation and red tape” that is driving advisers out of the industry and making it prohibitive for average Australians who want financial advice.

“The current model of advice is misaligned from the consumer protection framework,” the paper says. “Financial advice needs to be appealing and simple.

“Simple low risk advice is currently subject to the same level of regulation as high-risk advice, that now sits within a regulatory framework that was established when advice was conflicted.”

The FSC says the proposals in the Green Paper on Financial Advice have been developed with its advice licensee members and are underpinned by research from Rice Warner and consumer testing.

The paper says the Government should consider doing away with the “safe harbour” steps that are unnecessary and administratively complex, while giving financial advisers a false sense of protection.

The Statement of Advice (SOA), which costs between $2400 and $3000, should be replaced with a Letter of Advice. SOAs can run to as many as 80 pages and are often costly to prepare. The proposed Letter of Advice would be short, concise and consumer-oriented, according to the paper.

All financial advice should also be tax deductible irrespective of whether it generates taxable income. At present only certain advice such as those relating to tax or assets are deductible. The paper says the tax incentive should extend also to financial advice on income protection life insurance and superannuation.

“The majority of consumers support reducing unnecessary red tape across the financial advice industry if it lowers the cost of financial advice without weakening consumer protections,” FSC CEO Sally Loane said.

“Our aim with these proposals is to lower the cost of providing financial advice to make it simpler for consumers to understand and access, all without undermining the quality of advice or eroding important consumer protections.”

The FSC intends to publish a white paper on financial advice later this year, taking into considerations the feedback to the consultation launched today.

Closing date for submissions to the consultation is July 1.

Click here for the paper.