Nick Bruining: The one simple fix that would make financial advice for all so much cheaper

It’s easy to accuse the financial advice industry of whinging loudly to preserve a highly lucrative patch of turf. There’s no doubt that for some operators, that’s 100 per cent true.

Plenty of advisers concentrate their activities on the high net-worth space where percentage-based fees on sizeable portfolios mean big dollars. A standard one per cent adviser service fee on an investment portfolio of $4 million translates into an easy $40,000 a year in fees.

Ever wondered why there’s a flash freshwater aquarium in the reception area overlooking the Swan River? Because, you’re paying for it.

The reality is, many wealthy clients need very little “financial advice”. In the main, it is based on tax minimisation while protecting the estate from a son-in-law from hell. All of this while chasing the very best returns possible. The latter is often more luck than expertise with a Federal Government hell-bent on shutting down any tax strategies the wealthy might wish to exploit.

The real tangible value of professional financial advice is for those with more modest savings, trying to wrestle with an extraordinarily complicated retirement income system.

They’ll have the same issues as the wealthy, but with other issues added into the mix.

This will include optimising any Centrelink benefits, whether it is a part-pension or a concessions cards for seniors. Special tax offsets might apply, and restructuring investments to access these offsets means simplification to the point where you no longer lodge a tax return.

At the back of the financial planner’s mind will be provisioning and funding aged care, whether it’s the complicated Support At Home system, or residential aged care.

These are not the issues that will typically trouble the wealthy.

All the great planners I know take genuine pleasure in seeing a client’s face change when they realise their retirement plans can be achieved, even when they don’t have millions of dollars to play with.

Good planners dream of a day when that advice can be delivered in a few short visits, when the recommendations are contained on a single page instead of a voluminous 50-page “Statement of Advice” document.

Behind that document lie volumes of rules and regulations, imposed by regulators that specifically set out what the adviser must include when providing any advice that involves a financial product or service.

To be fair, this isn’t the fault of the Australian Securities and Investments Commission.

The industry can thank itself for the cavalier approach it has taken to ratbag and rogue operators over the years.

Lax standards imposed on those giving financial advice are a starting point. Up until just a few years ago, anyone could complete a short online course over a weekend and, on Monday, start dishing out financial advice to unsuspecting consumers. Many of those are still in business.

Don’t get sucked in by the line that “competence comes with experience”. Believe me, it doesn’t. We get plenty of emails from victims of poor financial advice where a poorly educated adviser clearly didn’t have a clue.

It’s only the younger advisers who are guaranteed to have a university qualification and will have served a supervised year before being let loose on the unsuspecting general public.

The bottom line is imposing even more rules and costs won’t fix the problem. It drives up prices, and that means only the wealthy can access a financial planner’s services.

The solution is, quite frankly, to reboot the system, and differentiate the sales-type advisers from the others.

Genuine financial planners would be banned from receiving any payments whatsoever from a fund manager or those involved in producing financial products or services. That includes advisers setting up and operating self-managed superannuation funds — a financial product in all but name.

Financial planners operating in much the same way as a GP who can’t receive kickbacks from drug companies.

In return, no endless 50-page-plus, useless and unread reports. Financial planners just need to demonstrate that they’re genuinely acting in their client’s best interests at all times, with serious consequences if they don’t. It’s what we would expect from any genuine professional.

That would drive the costs down dramatically and make financial advice accessible for thousands more Aussies who genuinely need their help.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association