The long-term impacts of regulatory reforms on the advice profession including what it means for consumer affordability are among key issues raised by the Financial Planning Association (FPA) in its 2022/23 pre-budget submission to Treasury.

FPA says it supports “in principle” the implementation of measures aimed at improving public confidence but points out the Government should also consider the long-term viability of the profession.

“Changing standards and regulations are being applied on top of an already complex regulatory framework that has evolved over many years,” the FPA submission said.

“The numerous factors contributing to increased costs for financial planners include the indirect expenses of complying with a changed regulatory landscape as well as the direct costs of fees and levies imposed by the Government on financial planners.

“Each of these factors affects the affordability and therefore accessibility of financial advice.”

FPA says many planners are either sole traders or work in small, or medium sized practices, meaning their capacity to absorb additional regulatory changes and increased costs is extremely limited.

The pandemic has created additional challenges for financial planners, the submission says.

FPA says recent data shows the average fee charged for a statement of advice has risen more than 15% over the 2020 calendar year and believes last year would have seen further increases as planners seek to cope with the cost of complying with more regulations.

“The everchanging regulatory environment and increasing costs can result in financial advice becoming more unaffordable and inaccessible for many Australians,” the FPA submission said.

FPA says the Government should consider providing tax deductible status to all financial advice regardless of the stage in the financial advice process as a way of addressing the affordability challenge.

At present tax treatments of financial advice occur in numerous ways, dependent on the nature of the advice sought and when it is provided.

As an example, the Australian Taxation Office has determined that a fee for service arrangement in the preparation of an initial financial plan, is not tax deductible.

However, ongoing advice fees are treated as tax deductible as they are deemed to have been incurred in the course of gaining or producing assessable income.

“This current tax treatment results in the benefits of available deductions for ongoing financial advice being skewed towards those of higher net wealth and incomes, and who can already afford financial advice for their established investment portfolios,” the FPA submission said.

The Actuaries Institute in its pre-budget submission voiced strong support for the development of a life insurance product rationalisation framework, as first announced in the 2021/22 Budget.

Consumers will benefit directly with more appropriate and contemporary life insurance products, and indirectly through gains in efficiency at an industry level and greater appetite for innovation amongst insurers if there are mechanisms to limit the negative impact of legacy products, the institute says.

The institute says it encourages consideration be given for life insurers to support rehabilitation efforts for disability income claimants.

“The Life Insurance Act currently prevents this. Allowing this support could significantly improve rehabilitation outcomes,” the submission said.

Click here for the FPA submission.

Click here for the Actuaries Institute’s submission.