The reforms will also cut the price of financial advice in half, from $2,046 before the reforms to $1,163 after the reforms by 2026/2027 (in 2012 dollars), predominantly due to increased take up of scaled advice, Rice Warner found.
The ISN described the reforms as a “win-win” for planners and consumers and said the benefits would outweigh the costs “even on the most conservative assumptions”.
The new Rice Warner report, The financial advice industry post FOFA, is a follow-up from a 2012 report of the same name also commissioned by the ISN, updated to reflect “significant” changes in the FOFA regime. The broader regulatory environment affecting the provision of financial advice falls outside the scope of the report, Rice Warner noted.
Explaining the estimated drop in the price of advice, Rice Warner said although increased transparency may result in “a perception of higher cost for complex advice”, fee for service is usually cheaper over the medium- to long-term. There will also be an increase in the number of Australians taking up scaled advice, the firm noted.
The report estimated that by 2026 there will be 1.88 million pieces of advice provided per year, compared to 893,000 pieces under a no-reform scenario. “This is mainly driven by the increase of scaled advice from 198,000 pieces in 2026/2027 under a no reform scenario to more than 1.1 million with the reform,” the report stated.
The actuarial firm also estimated there would be no significant shift in the number of employed financial advisers. Growth in planner numbers will be dependent on how quickly the sector adapts to shift in demand for scaled financial advice, the firm stated.
"We expect the overall efficiency and productivity of financial advisory groups to increase substantially," Rice Warner said.
This will be driven by technology improvements, ongoing consolidation in the financial advice industry, and simplification of the regulatory framework surrounding the provision of advice, according to Rice Warner.
“For example, scaled advice rules have recently been clarified and simplified. This has allowed advice to be delivered more quickly and with less paperwork. These factors mean that there remains significant scope for financial advisers to maintain and develop viable businesses, even if product manufacturer payments are banned for new business,” the report stated.
“The report finds that within a decade and a half there will be a doubling of financial advice, primarily due to the expected increase in demand for individual pieces of advice,” ISN chief executive David Whiteley said.
“The reforms to financial advice will set the industry up for a long period of stability, and the research confirms consumers can have renewed confidence in the system.
“Most significantly, it demonstrates the profound impact on national savings, with $144 billion extra in private savings under advice within a decade and a half.”
According to the ISN, the report includes the first cost-benefit analysis of the reforms, finding the benefits to consumers outweigh implementation costs by a factor of three.
“These findings show that the laws are a win-win for both planners and consumers,” Mr Whiteley said.
FOFA will ensure straight-forward advice about super is readily available at an affordable price, the ISN stated.
