The FSC has admitted it is still unsure how many clients will be turned off by having to pay upfront fees to use a financial planner when FoFA kicks in next year.
With clients having to pay approximately $2,500 upfront for financial advice, FSC CEO John Brogden says FoFA could create a large chasm in the market.
“When the conversation changes from ‘we can take 1% out of your bank balance’ to ‘that’ll be $2,000’, we’re still not sure on how the customer will respond,” he said.
“We’re not just saying this will cost you more, we’re saying this will cost you more and you can’t pay the way you used to pay, for some people.”
Brogden says FoFA was designed to deliver on two things: To reduce conflicts in advice, and to increase the accessibility to advice.
With the difference in cost between intra-fund and fully tailored individual advice, he believes a large group of potential clients – those who receive a modest inheritance of around $50,000 for example – won’t get the help they need because it’s too expensive.
“It’s that group of Australians that don’t get advice now… that we’re very keen to see get advice. And at the moment we’re not confident that FoFA will allow that to be delivered,” said Brogden.
He said current legislation requires advisers to have a very significant conversation with clients, which doesn’t address the simple questions but costs more.
Fear of breaching the best interest duty means advisers are asking a hundred questions instead of just 10, he says.
Brogden said that FoFA will have to pass a simple test to prove its success, and that is – are more people getting advice?
“Not ten thousand more, but hundreds of thousands more of Australians getting advice.”
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