Can Australia fix its financial advice problem and lower costs?

The number of licensed financial advisers has almost halved in the past seven years, falling from more than 30,000 to around 15,000 nationwide.

At the same time, households are facing more complex choices across super, retirement, aged care, tax and inheritances.

Research by Investment Trends shows 11.8 million Australians have unmet financial needs with 80% believing they could have benefited from financial advice.

"Many Australians are being left to manage major financial choices without professional support," says Sarah Abood, chief executive of Financial Advice Association Australia (FAAA).

"Some are turning to unregulated social media, or internet searches for solutions with high risks of permanent capital loss and dependence on social security."

That squeeze is driving a push to rebuild the adviser workforce, increasing the supply to meet the desperately needed demand. In a pre-Budget submission, the FAAA has put five fixes to the federal government to restore access to advice for consumers.

Making financial advice fees easier to claim at tax time

One of the biggest barriers for consumers is understanding whether advice fees are tax-deductible.

While some costs can be claimed, the rules are complicated and applied inconsistently, enough to put many people off seeking help altogether.

The FAAA wants to simplify the system by allowing full deductibility of both initial and ongoing advice fees where the advice relates to generating taxable income or involves tax financial advice.

"Without this change, it will remain extremely time consumer for financial advisers to navigate how the tax laws apply to their fees, which undermines making advice affordable for consumers," says Abood.

Faster and better advice through ATO access

The association is also pushing for advisers to gain access to the ATO portal.

This would allow them to retrieve tax information directly, eliminating weeks of paperwork, delays and back-and-forth emails.

For consumers, the benefits would be immediate: faster turnaround times, fewer errors and far less time spent hunting for old documents.

One adviser told the FAAA they spend an "obscene amount of time" helping clients track down basic tax information, especially retirees who no longer use an accountant or those less confident with technology.

"We are only asking for read-only access," says financial adviser David Sharpe. "It allows us advisers, with your permission of course, to go in and get the info we need without the back and forth."

Opening the door for more advisers

Another major focus of the submission is increasing the number of professional advisers entering and staying in the industry.

Currently, the pathway requires four steps:

• Completing an approved qualification that is limited to financial advice
• Completing a 1600-hour professional year
• Passing the financial adviser exam
• Maintaining ongoing professional education

The FAAA argues this system is too rigid and discourages new entrants.

Former financial services minister Stephen Jones has previously agreed, saying the current pathway is "not sustainable," noting that school leavers are not attracted to such a narrow study path and career changers face significant financial barriers.

Under the proposed reform, aspiring advisers could hold a degree in any discipline, provided they complete mandatory financial advice units.

With Jones's retirement, progress stalled but the FAAA says the need remains critical.

The FAAA is also calling for more grants and scholarships for new entrants and women, and for skilled migration pathways that allow experienced offshore professionals to come to Australia, complete accredited training and join the industry.

Cutting red tape without cutting consumer protection

The final two proposals aim to keep the public safe from financial misconduct without making advice even more expensive for consumers.

Right now, advisers must pay an annual ASIC levy to fund the regulator's work. But the FAAA argues the model is unfair because compliant advisers are being charged for investigations into people and firms they had no involvement with.

For example, if an unlicensed operator gives illegal advice, ASIC's enforcement costs are still funded by levies paid by law-abiding advisers.

Those costs ultimately show up in consumers' bills.

The FAAA wants the levy restructured so it's fairer and so money recovered from enforcement action is used to reduce the levy rather than flowing into government revenue.

This problem is magnified by the rising costs of the Compensation Scheme of Last Resort (CSLR), a program designed to ensure consumers are compensated when they lose money due to financial misconduct.

While the scheme is meant to protect the public, costs have blown out dramatically, and advisers are being hit with large bills for compensation related to failures they had no involvement in.

"These on-going costs are being imposed on the profession, despite the vast majority of financial advisers having no connection to the misconduct," the association argues.

"This situation is unjust, risks crippling small advice fir ms, and undermines the availability of affordable financial advice for Australian consumers."

Why this matters now

While advice does depend on one's situation, and consumers can get free advice elsewhere in some circumstances, research shows Australians are better off with advice than not.

With the Federal Budget expected to be handed down in May, the government will soon decide which reforms progress.

While there are more proposals on the table, the outcome affects more than the advice industry, but every Australian that does and doesn't get financial advice from here on.

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