Consumers could be paying more for advice if the Federal Government opt-in proposal in the Future of Financial Advice (FOFA) reforms is blocked.

Industry Super Network (ISN) commissioned actuaries Rice Warner to look at the cost of hourly fees for advice compared to a product-based fee.

The research modelled five common advice scenarios finding in every case consumers were well in front by paying a set or hourly fee as opposed to paying ongoing asset-based fees favoured by the financial planning industry.   

ISN CEO David Whiteley says the research systematically debunks the myth the government’s reforms would increase the cost of financial advice to consumers.

“The findings demonstrated where consumers paid for advice on an upfront basis, the cost is between two and 17 times cheaper,” he said.
 
“When consumers pay a true fee for service they benefit twice, because the advice cost is lower and they end up with better value products – picked on their financial interests, not the adviser’s.”

Mr Whiteley says the impact of product costs on the value delivered to consumers reinforces the need for the proposed “best interests” test.

“This test will require financial advisers to recommend products that are based on the client’s best interests by undertaking objective analysis of the recommended product’s value, against appropriate market benchmarks and to prioritise the client’s interests if a conflict of interest exists,” he said

“Ongoing fees are a very expensive way to pay for financial advice and this is shutting out the four out of five consumers who do not seek professional advice.

“The opt‐in proposal will ensure that consumers are not paying for advice they do not receive, and this will make advice a lot more affordable and accessible for ordinary Australians.”