The introduction of the FOFA reforms will mean consumers can access financial advice on a needs basis and as issues arise. They will not be locked into rolling fee arrangements they do not understand, but will pay as they go, as and when they use the service.
Meanwhile, the introduction of the best-interest test and the banning of commissions from July 2013 will give consumers greater confidence in the financial planning industry.
But are these promises accurate? Will limited advice be the panacea consumers are being sold?
There is a deep concern from practitioners that limited advice actually undermines the value proposition of professional financial planning and in doing so seriously comprises the experience and the outcomes for consumers.
Rather than opening up communication and empowering consumers, practitioners warn it will set caps on what can be discussed and when.
"Limited advice is done in the context of significant warnings. Now we are saying, before we can start, we can only talk about this. That's not what professional financial planning is about," Paul Moran Financial Planning principal Paul Moran says.
Association of Financial Advisers (AFA) chief executive Richard Klipin says his association does not wholeheartedly support the limited advice strategy.
It is concerned that by limiting the scope of advice, the quality of the advice is jeopardised.
"If scalable advice gives advice givers complete exemption from know-your-client, know-your-product and best interest, if it gives relief from all those things, scalable advice becomes selling product dressed up by another name," Klipin says.
It is considered those who will be best positioned to deliver limited advice will be the large institutions and banks, fuelling greater market concentration and the dominance of product-led strategies, which act as further distribution for product issuers.
"It could be subject to abuse if someone who requires broader advice could be provided with scaled advice," Hewison Private Wealth chief executive and founder John Hewison says.
How limited advice came on the agenda
Over the past three years, the concept of limited advice has certainly gained momentum.
In April this year, Financial Services and Superannuation Minister Bill Shorten announced the government's plan to facilitate the expansion of scaled advice to give more Australians access to affordable financial advice.
Over the same period, the FPA says the industry has also realised it needs to better accommodate consumer needs.
"Even though they [practitioners] believe they [consumers] need holistic advice, the reality is consumers want to address the here and now," FPA policy and government relations general manager Dante De Gori says.
Under section 945A of the Corporations Act, advisers can provide scaled advice within the boundaries of the know-your-client rule and with the prospect of criminal charges if they do not.
In July 2009, ASIC released RG200 for intra-fund advice. This came with its own set of limited circumstances. Its low adoption meant it was not very successful in giving more Australians access to financial advice.
In July this year, the corporate regulator released CP164, a consultation paper designed to thrash out some guidelines with industry on how limited advice can be provided to consumers in a responsible and safe way. ASIC demonstrated its commitment to the end goal by stating one-third of Australians now preferred scalable advice.
For Moran, the inclusion of limited advice in Shorten's reform package comes as no surprise. He strongly believes Shorten is being guided by the industry fund agenda and with his union background he will deliver what is best for it.
"He [Shorten] clearly thinks limited advice will bring hundreds and thousands of Australians out of the woodwork," he says.
Limited advice on the nose
Practitioners say there are a number of dangers around limited advice that prevent it from being the great solution it is said to be.
In practice, instead of providing holistic advice and anticipating the future needs of a client for about $2000 to $3000 a year, a consumer can walk into a financial planning office and access professional financial advice services for about $120 an hour. So for five hours service a year, they would pay $600.
Such a model would seem to deliver the goal of more cost-effective advice for more Australians. The issue is the quality of advice and the ability to deliver it in a limited way.
"When you have a lay-person discussion with a client, typically there is a chasm between where they are and where they want to get to," Shadforth Financial Group principal and financial adviser David Haintz says.
"I have never met anybody in 22 years that I couldn't help in some way. It's a matter of getting data collection in a timely way and offering advice."
In the limited advice model there is not an ongoing relationship. Everything happens much faster and the threat of misunderstanding is a lot higher.
Currently, the two most common types of complaints recorded by the Financial Ombudsman Service are a lack of understanding about what the consumer is getting and the quality of advice.
"The danger is communication about what advice a client is getting so the client is fully aware," De Gori says.
"Particular groups might think they can take advantage and provide quantity rather than quality,"
For Moran, the formal introduction of limited advice attacks the heart of what financial planning can be for consumers. It prevents it from being an ongoing relationship where consumers can regularly have reviews with their planner to see that they are on target to realise their goals.
"AustralianSuper, on the new advice website, it says these are the calculators financial planners use and you can use them and statements of advice (SOA) will be produced. The SOA is seen as a template product, which is so far from the truth," he says.
"Advice is an opinion. Information is plugging in something and getting information back."
In this way, he believes the distinction between financial planning and financial advice comes down to step six in the FPA's six-step financial planning process.
"Step six is review and monitor. Financial advice does not have step six," he says.
For the AFA, its concerns over limited advice are more macro and include how the financial planning industry can retain its reputation and an advice brand.
"The danger is in the mind of all consumers, that sales become advice," Klipin says.
So do the benefits outweigh the dangers?
"One of the problems we have is engaging Australians. One way of understanding it is to have access to it at some level," De Gori says.
Haintz adds: "If done properly, scalable advice will assist advice-led strategies that deliver tiered advice that cost effectively moves clients along the advice continuum at a pace and cost that suits them."
Limited advice is rare
Despite questioning the application of limited advice and indeed its ability to increase the accessibility and affordability of financial advice to more Australians, practitioners believe it has a place in their business.
"By all means empower consumers to scratch and itch, but not to the detriment of managing their total financial wellbeing," Haintz says.
Hewison says if a client has a son or daughter who is simply looking to consolidate their superannuation, this would be a situation where limited advice would be provided.
"But on a pro bono basis. We are fee-for-service so we could always charge a fee but we would do it for free," he says.
Practitioners say it is rare that they are called on to provide limited advice.
"Even somebody who comes in, we are obliged to get enough information to provide it, so the idea of limited advice is very limited," Hewison says.
Haintz says Shadforth Financial Group is actively engaged in providing scaled advice with the aim to offer more comprehensive advice in the future.
"Particularly to accumulators within corporate super fund arrangements on an advice-led basis, with the scope to move clients up the advice curve towards holistic advice as and when they need it," he says.
And there is a segment of the AFA membership base that is strategising around limited advice, particularly businesses that work with the corporate superannuation market.
Fear of paying
If limited advice is already provided in the industry, albeit on a pro bono basis, why would practitioners not jump at the chance of earning a fee from it?
The financial planning industry has historically not been good at articulating its value proposition and, as a result, has been underselling itself as a service and a profession.
Interestingly, the FPA says when it first released its anti-commission remuneration policy to its members, the biggest concern members had was that they would have to articulate their value proposition with clients and communicate what it was worth.
As it stands, limited advice is most commonly provided for free because a fee is paid by a client who has a relationship with the business. Further, clients currently have a choice to pay either by commission or fee-for-service, which gives low-to-middle-class Australians more payment options.
"The question going forward is, are they willing to pay? Businesses will probably change their business model and rely on high net worth clients to pay the fees," De Gori says.
"You can't do pro bono on everyone; you have to change your business model to provide scaled advice."
So in the short to medium term, he does not see planning businesses providing advice to middle Australia. But this is not simply the result of the formalisation of limited advice; more as a result of the reform agenda that will also lead to departures and consolidation.
The AFA says it is sees more businesses that are going up-market and upstream in their market segmentation. "FOFA means you need to better look after your client," Klipin says.
ASIC guidelines a waste of time
The idea that adequate guidelines can provide greater clarity around limited advice is questionable.
"In some ways this whole thing is a bit naïve. When you are in front of a client it's very difficult to say you are not going to ask them about that," Hewison says.
ASIC launched its consultation paper CP164 "Additional Guidance on how to scale advice" in July, with guidelines expected to be released in the final quarter.
According to the FPA, the majority of the feedback it has received from members about the guidelines is about the poor timing of the consultation paper. That is, in the absence of knowing the detail of the FOFA reforms, in particular the best interest reform, any guidelines under CP164 could be made redundant.
It could mean the guidelines are in place for just six months before the commencement of the FOFA reforms in July 2012.
Further, the amount of detail in the guidelines could be a problem as they could be seen to set limitations on the scope of advice. What is required is a balance between a principles-based approach and examples.
"We encourage them to be more principle based and try to reflect the major consumer needs in the marketplace. So what are the top five things consumers are facing?" De Gori says.
A tick-a-box approach will mean no differentiation between planners. While ASIC and the government need to encourage planners to operate within the law, it is their opinions and viewpoint that consumers want.
"At the moment, the current guidelines run the risk of merely giving product issuers a 'leg up' to pursue product-led strategies," Haintz says.
Limited advice plays into big hands
The business model best suited to the provision of limited advice is the large networks and banks that can use their resources to provide it in a process-based, standardised and cost-effective manner.
AMP is held out as one example of a group that is moving more into this area, while industry superannuation funds such as Q Invest and AustralianSuper have been doing so for the past few years.
"We see the institutions being able to accommodate limited advice more than others because it is around structure and process," De Gori says.
Moran agrees. "It's less viable for businesses sitting waiting for clients to walk in for limited advice. Banks and industry funds will be able to offer that," he says.
De Gori says by using call centres and junior advisers, institutions can organise and structure the way they deliver limited advice. It also means junior planners would then get the experience they need to join professional industry associations such as the FPA.
Further, the reach of these institutions will extend to accommodate non-traditional clients such as young adults who do not need full-scale financial plans.
"Their questions are more specific," De Gori says.
But even if the larger networks are the main providers of limited advice, exactly how it will be done remains unclear.
"Whether dealer groups would have particular advisers providing limited advice and then they refer on, but when do you refer on?" Hewison says.
"There are some very grey areas for professionals."
For Klipin, the model best suited for the provision of limited advice is not clear.
"We are not going to know the answer to that for some time. There are some clients where holistic advice is what prevails," he says.
He says in the recent judging of the AFA awards, what was apparent was the businesses that establish themselves around particular market segments are the way of the future. This could be very specific areas, such as divorced widows or generation X.
