For many of us, gainful employment is a part of life – we go to work, come home, and earn a wage for the time we spend on the job. The money we earn, of course, can go towards a wide range of things, such as housing, food, and travel expenses. Perhaps we save and scrimmage a little for a big-ticket item, like an overseas holiday or even a deposit on a home.
What does it take to get ahead with your finances, though? For many Aussies, seeking financial planning advice is often one of the first steps in a long journey of improving one’s fiscal outlook. However, there are challenges to accessing financial advice – particularly for those who have not completed a qualification such as a Master of Financial Planning online.
Let’s dive into financial planning and, in particular, explore a new initiative proposed by Liberal MP Bert van Manen, designed to streamline requirements imposed on financial planners when providing advice. Could this initiative open the door to accessible financial planning for all Australians?
What Is Financial Planning?
For many of us, financial planning is a foreign concept. In many surveys investigating Australian living standards, a common issue is the concept of nearly half of all Aussies living paycheck to paycheck, which can limit the ability to build wealth.
In recent years, efforts to build financial literacy have proved helpful in helping people improve their quality of life and, more broadly, work towards savings goals. In particular, strategies to improve one’s financial position, such as those suggested by Scott Pape (also known as the Barefoot Investor), have proved effective in capturing the imaginations of those looking to take the first step toward building wealth.
Once you’ve saved up some money and are working towards a goal, deciding what to do next can often be tricky. Financial planning may benefit a person’s wealth-building journey by providing methods for working towards someone’s short- and long-term financial objectives.
A financial planner can provide financial planning advice by holistically examining a person’s financial circumstances. This involves going through a client’s financial history – including debts, liabilities, and goals, to help provide a personalised plan that works within their financial situation. The work of financial planners can provide a level of detail that’s simply not possible through generalised support and, as a result, may be highly beneficial for those looking to grow their wealth further.
Obstacles to Accessing Financial Planning Advice
While financial planning advice may be beneficial, the role has experienced significant change in recent years. In the wake of the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry, changes to the financial services sector were announced to professionalise the industry and ensure that consumers were provided with the best possible advice.
These changes have seen a substantial decline in the number of financial advisers working in Australia. Changes to education and registration requirements have resulted in a workforce decline, which has an impact more broadly on the accessibility of financial planning advice for all Australians.
Additional changes to regulatory compliance have also affected the way that advisors provide advice to prospective clients. In particular, financial advisers are required to provide a Statement of Advice, which can often take a large amount of time to produce and often does not meaningfully benefit the client.
As a result, the reduction in the number of financial advisers in the sector and increased compliance requirements has hampered the ability of ordinary Aussies to receive financial advice.
Data showing that the average cost of financial advice has risen 58% in the past five years demonstrates that clients face not just regulatory but also financial barriers. While the Albanese Government has passed some reforms in the financial advice sector to improve access to affordable financial advice, some critics argue that much more could be done.
Improving Accessibility
In recent years, many reviews have been undertaken on the complexities of the financial advice sector and what could be done to unpick some of the regulatory challenges that exist for those who work in the industry and those who seek advice. The most well-known of these reviews, the Quality of Advice Review, was completed in late 2022 and contains some twenty-two recommendations on ways that the financial services sector could be reformed. However, nearly two years later, the government has not adopted these recommendations.
Consulting with the finance industry, Chief Opposition Whip and Member for Forde, Bert van Manen, has recently introduced a private member’s bill to bring the Quality of Advice Review to the forefront. Building upon the recommendations from the Quality of Advice Review, it looks to simplify the documentation and paperwork financial advisers need to prepare for clients – helping streamline the experience for both adviser and client.
Instead of providing clients with a bulky Statement of Advice, the bill instead provisions for financial advisers to provide a Letter of Engagement, simplifying the experience for clients and advisers. This reduction in red tape hopes to reduce the amount of work required to complete financial advice without sacrificing quality – with anecdotal evidence revealing that the current Statement of Advice (SoA) is rarely fully understood by clients.
Historically, private member’s bills have faced substantial challenges in getting passed into law. Since Federation, less than forty private member’s bills have been passed into law, according to data published by the Australian Parliament. Van Manen’s Bill faces challenges, particularly if the incumbent Government chooses not to support it.
For those looking to step into a new career, financial planning offers the ability to help shape the lives of people looking to make the next step in their wealth-building journey. As a new generation of financial planners looks to support this highly desirable industry, reviews such as the Quality of Advice Review and legislation introduced by parliamentarians will continue to shape the role of financial planners for many years to come.
Taking the next step in a wealth-building journey can sometimes feel like a challenge – however, financial planners fill a vital role in providing guidance and advice. As the regulatory environment evolves to support them, it’s exciting to imagine what financial advice may look like, even just a few years from now.