High price of advice is obvious

Bruce Brammall, The West Australian, 3 August, 2019

Too often for my liking, the little guy just gets totally screwed over. And the roulette wheel spins in favour of the wealthy.

Rules get changed for “righteous” reasons, by politicians in ivory towers. They believe they are creating the ideal, but the trickle-down consequences aren’t properly considered for those it impacts.

The result? As Midnight Oil says: “The rich get richer, the poor get the picture …”

I was most recently reminded of this when ASIC commissioner Danielle Press said that she couldn’t understand why financial advice was so expensive.

“We hear a lot that the cost is too high, but we’re not sure where those costs are coming from,” Press told a Federal Parliamentary committee. “So, we’re trying to get to the bottom of it.”

Oh … my … lord. Seriously?

One can only assume ASIC will now spend $20 million on a study/survey/research to give them a few ideas.

But almost any financial adviser with a decade’s experience could give them a comprehensive answer for the cost of a cup of coffee.

If I could channel Billy Joel’s lyrical talents from “We Didn’t Start The Fire”, I could probably turn the following into a top-40 hit. But being tragically musically giftless, I’m just going to have to provide the following list of, largely, TLAs (three-letter abbreviations).

SOA, ROA, CEA, CSA, FDS, AML/CTF, FDS, PDS, FSG, ATP, TPB, CPD, CFA. (Don’t worry about what any of these stand for – not important today.)

Outside of those TLAs, there is FASEA, opt-ins, compulsory annual reviews, continuous research, compliance file notes, higher educational requirements, licensee requirements. To say nothing of the time required to actually implement advice once accepted.

Here it is in plain English: Since 2013, the costs of providing financial advice has risen exponentially. Each year. Every year.

The common wisdom points the finger at Kenneth Hayne’s Royal Commission. But most was planned or in place well before Kenny handed down his stone tablets from atop the mountain.

And let’s get this straight. Every single change was made with the best of intentions – designed to lift consumer protections, confidence, transparency and professionalism.

But the combination … you know the fable about the frog in the pot.

Advisers are fleeing the industry – about 30 per cent already have. Many, many more will go in the next two years.

“Should we care?’ you ask. About that actual statistic? Probably not. Maybe it’s the bottom 30 per cent.

Those remaining are, necessarily, lifting their average charges to cover the increased costs. They are running a business and businesses that continually lose money don’t survive.

Some valued clients who don’t perceive value in the extra cost will leave. And unprofitable clients will be cut adrift.

Then there are thousands who want/need advice, but baulk when told what professional advice now costs, which is, on average, 20-30 per cent higher than a few years ago.

I’ve said for a long time that the laws made in recent years are “Rich old men making rules to suit rich old men”. By that, I mean that the framers believe the industry should meet their ideal on providing advice.

Unfortunately, the costs of operating that way are far higher. If you raise the price of anything, fewer people can afford it. (But affordability will never be a problem for them, or their friends.)

Every change has increased advice costs. Think of a ladder leading out of a pool of acid. Every time more acid is tipped in, the lowest rung on the ladder gets eaten away.

In that metaphor, I’m pretty sure I don’t need to tell you who is on the lower rungs, do I?

This is what ASIC (and our politicians) seem to fail to understand. Now ASIC will go off and run an expensive inquiry to find out why the cost of advice has risen to the point where consumers are complaining that they can’t afford it.

Give one senior staff member $25 and get him to buy five advisers a cup of coffee.

My concern is for regular Aussies, who want/need advice. But it’s been pushed out of reach by different tentacles of a bureaucracy that fails to understand the frog in the pot.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.