The advice gap: How red tape is leaving Aussies stranded

The financial advice industry in Australia is at a crisis point. Politicians urge people to seek financial advice, yet when somebody actually tries to do it, they quickly discover it’s like wading through quicksand.

The barriers are everywhere, the costs are enormous, and the outcome is usually far from satisfactory.

Take Ross, who wrote to me a couple of months ago. He said: “I’m 72, with $800,000 in superannuation with MLC. I want to implement a withdrawal and re-contribution strategy to reduce the death tax you keep warning about. I went to a financial adviser, and they quoted $6,000 to handle it. Is that reasonable?”

At first glance, I thought it was outrageous. After all, it’s not a complex strategy—it simply involves taking money out of super and putting it back in.

He explained: “We’re required to go through an exhaustive Know Your Client process, which means a detailed fact-find covering every element of their financial life. Then we must produce a Statement of Advice that typically runs to 80 or 100 pages.”

“Nobody is going to do that for less than five thousand dollars, however simple the underlying transaction may appear.”

I pushed back: “But this is Ross. I know his age, his objectives, and his strategy. It’s just a withdrawal form and a contribution form.”

The adviser was unmoved: “Doesn’t matter. The law is the law. If I gave advice without producing all the required paperwork, I’d be struck off.”

Hoping to find a workaround, I approached my accountant. But I quickly hit another wall.

He told me: “We can advise on tax, business structures, family trusts, and even whether a self-managed super fund might be suitable. But we are legally barred from giving superannuation advice. That area is completely off-limits.”

Well-intentioned laws have made getting financial advice harder than ever. Source: Seniors Discount Club

This story illustrates the wider mess. The financial advice industry has been crippled by poor decisions from both sides of politics.

Successive governments decided the best way to “protect” consumers was to bury advisers in red tape.

They mandated exhaustive Statements of Advice that most clients never read, but which cost thousands of dollars to prepare.

Then they compounded the problem by banning accountants from giving superannuation advice, depriving people of the professionals they already knew and trusted.

As if that wasn’t enough, they went further and insisted that every adviser, regardless of age or experience, must return to university to obtain a new degree.

Many had been serving clients faithfully for decades. One senior ASIC official summed it up well: “It’s like telling me to redo my law degree from scratch.”

This would be a crisis at any time, but it is especially dangerous now.

Compliance costs are sky-high, and the education requirements have driven out many of the best.

What we are left with is an advice gap. People with substantial super balances, who desperately need help, are either priced out of professional advice or forced to go it alone.

And mistakes in this area can be devastating.

The tragedy is that this is a crisis of our own making. Ordinary Australians are being left stranded because governments—Labor and Liberal alike—were too focused on political posturing to think through the long-term consequences.

Unless reform happens soon, millions will retire without access to affordable advice, at precisely the moment they need it most.

Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.