“Variability in the quality” of services is the financial advice industry’s main problem, according to the Financial System Inquiry.

The inquiry’s interim report says many consumers have difficulty assessing the quality of the advice they receive.   

“Access to affordable advice for consumers is also an issue, although lower-cost advice still needs to be of reasonable quality to provide a benefit.

“It is challenging to increase the quality of advice and make it more affordable and accessible. The cost of regulation and compliance will ultimately be passed on to consumers.”

The report says increased education and training requirements could make advice less available as fees rise. It also warns advisers may leave the industry rather than upgrade their qualifications.

The Australian Securities and Investments Commission (ASIC) has recommended a national exam for financial advisers.

“Many other jurisdictions have national examinations – Canada, Hong Kong, Singapore, UK and the US,” the inquiry’s report says. “The risk of introducing a national exam is that consumers may place too much expectation on the regulator guaranteeing the competence of advisers who have successfully passed the exam.”

The inquiry wants further submissions and will hold more talks with the industry about the benefits and drawbacks of such a model.

It will also consider giving ASIC the power to ban individuals from running financial services companies. At present the regulator is only able to ban individuals from giving financial advice.

The interim report also addresses adviser independence. It finds current legislation does not require personal advice to be independent and the only limitation is on who can call themselves independent.

The issue will be further investigated, and the inquiry will examine consumer reactions to the difference between aligned and independent advisers.

The inquiry also wants further submissions on the regulatory burden facing the financial services industry, so it can assess whether the costs outweigh the benefits.

The inquiry panel says there is a case for user-pays funding of ASIC, based on the UK and Canadian regulatory models.

Further consultation will be undertaken before the final report is delivered in November.