Paying through the nose for financial advice is a bit rich. Here’s an alternative

Should I pay off my mortgage or invest in my super? How much should I save for retirement? How much age pension will I get? Will it all be enough? Australians are drowning in questions when it comes to their increasingly complex financial futures.

Today, however, there exist only 16,000 licensed financial advisers qualified to give us the personal advice we yearn for. Meanwhile, the median annual fee being charged for such advice recently struck a record-high of $3710 – a 48 per cent increase in just five years.

There are just 16,000 licensed financial advisors in Australia.Credit:iStock

You don’t need a financial adviser to tell you those numbers just don’t stack up: Australia’s financial advice system is broken. The only question is: what to do about it?

A review by Allens partner Michelle Levy released this month has attempted to answer that question, and the Albanese government is currently “stress testing” and reviewing her findings before responding.

The Levy review was a recommendation of the bombshell Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which heard of instances of advisers charging “fees for no service”, even debiting them from the accounts of dead people.

The move to clean up the industry began, of course, much earlier under the previous Labor government’s Future of Financial Advice changes, leading to much more onerous qualifications and paperwork requirements to ensure advice given is in clients’ “best interests”.

Michelle Levy led the Quality of Advice Review for the government but some of her recommendations have alarmed consumer groups.Credit:Rhett Wyman

The Levy review recommends, with the support of consumer groups, that some of the more onerous paperwork requirements associated with these stricter standards be scrapped, which will hopefully reduce the cost of advice.

More sensationally, and to the outcry of consumer groups, the Levy review also recommends a new two-tier system of personal advice; the first to be delivered by licensed advisers under the existing “best interests” test, and the second to be delivered by “non-relevant” providers, including banks and super funds, under a new “good advice duty”.

Consumer groups warn the changes, if implemented, would result in the provision of “conflicted advice” from financial service firms and sow the seeds for the next royal commission.

You can see where Levy is coming from. Bereft of access to affordable licensed advice, the closest interactions most Aussies have about their money are usually directly with their lenders or super funds. It’s not uncommon for members to ring up and ask for advice only to be turned away.

A low-cost, government-run service – like a beefed-up MoneySmart – could offer most consumers the financial advice they need.Credit:Dionne Gain

Perhaps, in our pursuit of quality advice, we have made “perfect” the enemy of the “good”. Perhaps extending “good” advice to more people would yield benefits to offset any small resulting harm from either a less stringent test of advice or the inherent conflict in having financial services firms providing advice about their own products. Perhaps.

What the Levy review seems to miss, in my view, is any vision of where Australians could potentially access advice outside of qualified advisers or product issuers.

What about the government?

In her report, Levy summarily dismisses the idea of a government-run scheme – favoured by consumer groups – which operates in the United Kingdom and provides limited sessions of free advice, in phone and in person, to consumers. The UK service is funded by a small levy of about a dollar a year on all retirement accounts.

Australia already has a trusted MoneySmart website offering online tools and calculators, alongside a government-funded National Debt Helpline (1800 007 007), which provides free financial counselling to indebted consumers. I’d combine the two and beef them up.

Rather than having Australia’s 140 super funds designing the advice wheel 140 times over – and deducting the cost from member accounts – the advocacy group Super Consumers Australia suggests a much cheaper option would be to contribute a small amount – say, a dollar a year – from every super account to establish a government-run service to give personalised advice to Australians, similar to the UK.

In addition to a new telephone or in-person advice service, MoneySmart should be beefed up with more financial education resources and bring together existing government tools already designed to help empower consumers to compare the performance and pricing of products like superannuation, health insurance and electricity bills.

Rather than putting financial advice back in the hands of financial product issuers – which seems a lot like putting the foxes in charge of the hen house – it’s time for the government to step up and fulfil its obligations.

Governments have made our financial lives inordinately more complex in recent decades, forcing us to save money via superannuation, to which increasingly complex tax rules apply. Having done so, responsibility must surely lie with governments to make sure consumers are equipped with a service to help them navigate the maze of complexity they have created.

I’ll even put my hand up to run it, if you like.

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