Financial advice gap to remain despite government’s efforts to plug it

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The number of financial planners in Australia appears to have stabilised at almost 16,000, following a decline of about 12,000 since 2019’s peak, but changes underway by the federal government may only be partially successful in plugging the advice gap.

Financial advisers left the industry in droves after the former Morrison government implemented the recommendations that were made by the banking royal commission in 2019, that were designed to lift professional standards.

Minister for Financial Services, Stephen Jones, has released a draft legislation aimed at helping to plug the gap in financial advice.Credit: Janie Barrett

Furthermore, some of the changes increased regulatory and compliance red tape and increased the costs incurred by planners in giving advice, which led to sharply higher advice fees for planners who remained in the industry.

The Albanese government has started to implement some of the recommendations of the Quality of Advice review that the former government commissioned to review the workings of the recommendations of the Banking Royal Commission.

Part of the government’s solution to help close the advice gap includes making it easier for super funds to provide advice to their members whose advice needs are simple.

However, Alex Dunnin, executive director of research and compliance at Rainmaker Information, says the changes being implemented to increase financial adviser numbers may only help to stem further falls in numbers from here.

On his most optimistic reading, the changes could potentially see an additional 2000 planners added to the planner workforce, to take the number to 18,000 by 2023.

However, even if this more optimistic growth in numbers was achieved, it would still not be nearly enough to plug the advice gap, Dunnin says. It estimated there are five million Australians who are either retired, or who are approaching retirement.

The Retirement Income Review of 2020 found that only 26 per cent of individuals approaching retirement sought financial advice.

The government recently released the draft bill for the first tranche of financial advice legislation, aimed at cutting red tape for financial advisers and clarifies how a fund member can pay for personal advice from their super account if the advice relates to their interests in the fund.

Stephen Jones, the minister for financial services, told a financial planning industry gathering last week that “well-intentioned rules are adding to the cost of advice without improving consumer outcomes” and that the government wants to “ensure that the advice is relevant, helpful and affordable”.

He said further legislation will come in 2024, as the government is determined to increase the provision of advice.

Angus Woods, founder of Adviser Ratings, which rates financial advisers, says there are not enough graduate financial advisers and not enough in the pipeline to close the advice gap. “The number of university students graduating in financial planning has stalled,” he says.

He says that super funds have a big role to play. If the changes from the government do cut compliance red tape, then you may also see more accountants looking at providing advice, Woods says.

Another avenue is deploying technology to do a lot more of the routine work. This is where much of the fact-finding about the person seeking advice is performed by an algorithm, perhaps even with artificial intelligence, with a human adviser still at the core of the advice-giving, Woods says.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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