Anticipated reforms requiring financial planners to act in the best interests of their clients could more than double the number of people receiving financial advice and add 10 per cent to Australian savings within 15 years, according to new research by Rice Warner Actuaries.
The report, commissioned by ISN, also shows that incomes for financial planners would continue to increase following reforms, which would remove all forms of commissions and other incentives paid to financial planners, including percentage based fees for advice.
This ground-breaking analysis by Rice Warner provides a blueprint for reform for Government and the financial planning industry.
The Rice Warner report highlights numerous benefits of financial services reform to consumers, the financial planning industry and national savings:
- The number of people receiving financial advice would increase by almost 125 per cent by 2024. 900,000 more pieces of advice would be provided by 2024 if reform is implemented. The number of low to middle income earners receiving financial advice will increase dramatically.
- National savings would increase, with total investment business anticipated to be $117 billion higher by 2024 (in future dollars). The additional savings are driven by the lower cost of obtaining advice and the increased savings following a higher take-up of advice.
- Average financial planner revenue would increase from $169,000 in 2009 to $363,000 by 2024 (in future dollars).
- Increased efficiency would be achieved by financial planning groups through increased economies of scale, automation and innovation.
- Commissions and percentage based fees are not a transparent pricing mechanism and can have a dramatic effect on consumers’ final retirement savings.
- Commissions and percentage based fees mean many consumers pay for a service that they may not have received for many years because of inertia or structural defects in products.
- The number of people receiving financial advice would increase substantially (largely advice targeted to their needs at a specific time rather than holistic advice for which demand will remain steady).
- The cost of financial advice would reduce and consumers would seek advice more suited to their needs at a specific point of time.
‘This ground-breaking analysis by Rice Warner provides a blueprint for reform for Government and the financial planning industry,’
ISN Chief Executive David Whiteley said.
‘The Government has rightly been concerned that comprehensive reform of the financial planning industry could reduce the number of people receiving advice. This analysis predicts the opposite will occur and nearly one million more pieces of advice will be provided each year,’ he said.
Confidence in the financial planning industry is at an all time low. This analysis offers an insight into the shape of the future where financial planners adopt the true hallmark of a profession: the legal requirement to act in the best interests of clients.
‘This report demonstrates that a reformed financial planning profession could remain highly viable while delivering substantial benefits to fund members and the economy,’ said Mr Whiteley.
The analysis predicts a sharp increase in financial advice provided by super funds to their members, scaled specifically to their needs. Total employment of financial planners is predicted to be stable for five years and then reduce by 2024, driven by efficiency improvements. The analysis did not however model the potential increase in indirect employment, for example innovations in information technology and support services.
* Modelling done for the Report shows that only not for profit funds had above average returns and below average fees – see Figure 1, page 3.