Two decades of reform have resulted in the ranks of advisers being decimated, immense reputational damage and a legacy of systemic problems for the industry, consumers and the wellbeing of the Australian economy as a whole.
The reforms of the past have resulted in a regulatory system and industry that are unfit for purpose and an unprecedented challenge that both the federal government’s senator Jane Hume, shadow minister Stephen Jones and the major political parties need to address as a matter of urgency.
Although a bleak picture, there is still time to reverse these failings with reforms that facilitate scale and better consumer financial education and literacy… and I outline my suggestions in the following narrative.
Australia’s financial services industry is quite literally facing a problem of national significance that has adverse implications for the industry’s viability, competitiveness and most importantly, for the financial health and wellbeing of the Australian populace.
Two decades of reform have been characterised by the federal government listening to the loudest voices of “self-interest” and as result the sector is now needlessly complex, expensive, with affordable advice out of the reach of most Australians… and overseen by a regulatory framework that’s increasingly incapable of dealing with modern industry issues.
In fact, it has accelerated the exit of advisers from the industry whilst simultaneously dissuading new entrants from considering a career in advice, hindered innovation and uptake of technology, growth and capacity to respond to new opportunities, rapid changes in consumer needs and overseas competition.
In order to have a viable and successful future, as basic principle of business, advice has to be affordable and underpinned by a genuine framework that facilitates transparency, best interests of the client, and most importantly, scalable!
Future of advice
To achieve this, financial advice needs to move down the path of removing power away from super funds, lawyers, institutions and putting it in the hands of the consumer.
By placing the consumer at the centre of the financial services universe, it will ensure the provision of advice is affordable, fit for purpose, reliable, simplified and outcomes based rather than responding to the prescriptive regulatory framework that is currently in place.
To achieve this, the first step is a new advice framework comprised of three categories or levels of advice:
- Consumer information – Not specific, not product focused
- Proprietary advice – Product/service focused e.g. industry funds, super funds, robo-advice, digital advice, shares, life insurance, mortgage, finance, SMSF, aged care, etc
- Personal advice – Holistic independent advice not product focused
Whether consumer information, proprietary advice or personal advice the financial practitioners will help consumers achieve their specific financial goals. While they share similarities, they differ in the types of service they offer and the remuneration rates at which they offer them.
Proprietary and personal advice operate on the principle that the adviser has a fiduciary duty to act in the best interests of the client.
Scale
Most importantly, the three categories will facilitate scalability in the provision of advice.
In Australia we need to improve the accessibility and affordability of financial advice, and this can only be achieved by increasing the scalability through the new advice framework and cutting the over-regulation of the industry.
Scale is essential and an immediate benefit will be the ability for advice practices to grow, streamline operational/administrative/compliance operations and activities; reduce costs and encourage new entrants to join the advice industry.
Financial literacy
Throughout their lifetime, Australians are more responsible for their personal financial wellbeing than ever before, yet simultaneously the vast majority lack the fundamentals of financial literacy.
This is of acute concern and needs immediate attention.
The current education curriculum is literally failing the nation as it neglects to provide financial literacy as an essential skill in the 21st century.
In fact, financial literacy should be considered as important as basic literacy.
Financial markets and the growth in fintech are changing rapidly and no nation can avoid being impacted by developments in technology, and new and more complex financial products. The range and complexity of financial products consumers have to choose from are literally mind-blowing, and decisions relating to the purchase or investment in these have far-reaching consequences and implications if the wrong choice is made.
At present, schools are providing courses in financial literacy on an ad hoc basis – and this is unacceptable.
Financial literacy courses should be compulsory in all schools for students in years 10 to 12.
Government and the regulators
Far-reaching advances in technology and globalisation are creating a sea of unprecedented change in Australia’s regulatory environment, resulting in significant challenges for the government and the regulators.
Emerging technologies such as artificial intelligence, distance learning, big data, cryptocurrencies and digital platforms are disrupting traditional business models – and in their wake, government is struggling to keep pace.
This is an era where the past tendency to over-regulate is doomed to fail and will not be tolerated.
Australia needs a 21st-century regulatory regime to oversee and guide the new framework of face-to-face advice underpinned by advances in technology. It must be proactive and based on the principles of common sense and these are –
- No retrospectivity in legalisation, regulations, or education
- Move advice out of the Corporation Act
- High education standards – On industry entry and ongoing
- Full advice fee disclosure – Clients can opt out at anytime
- SOA not required – Client communication should be clear, concise, and in an effective format the consumer can understand
- Move to individual advice licencing regime
- Advice profession is based on fiduciary duty to act in the best interestS of the client
- Separation of product advice and strategy advice
Digital media platforms
The Australian advice industry needs to utilise digital media platforms more effectively as a vehicle to engage with consumers of all ages. Far too many are still failing to use it effectively as an essential component of their client experience, business marketing and communication strategy.
As it continues to grow and weave itself into the daily patterns of everyday Australians, more consumers will turn to existing and emerging digital platforms for their purchasing decisions.
Consequently, digital platforms will dominate ASIC’s surveillance focus and processes over the next decade and well into the future.
Conclusion
The history of financial services industry reform can best be described as being afflicted by a commitment to reductionism. While there have been commendable advances, by and large reform has been a failure.
Consequently, industry reform in Australia has been too long characterised by conflict and division, and has failed to effectively respond to technological and social changes.
Nor has reform been utilised as an opportunity to make advice affordable and accessible, to drive productivity and promote a positive public image.
So not surprisingly, the situation we see today, is of an industry that has reached a crisis point and in an environment in which consumers have lost faith in the sector’s ability to deliver affordable and accessible advice and reliable/relevant products and services.
The solution is simple… the sooner politicians adopt a bipartisan approach and vocal lobby groups put self-interest aside, the sooner all stakeholders will find the courage and wisdom to restructure financial services with purpose, for growth and success.
Paul Tynan, chief executive, Connect Financial Service Brokers
The red tape layer upon layer of regulations were always a crash waiting to happen. Sadly the adviser driving the bus and most of the adviser passengers were killed. The lawyers and ASIC in the following bus managed to survive…
Can someone please advise how most clients have benefited with far less advisers to take care of them and most of their advice costs having increased?
There are far too many chefs in the advice kitchen these days , from lawyers to compliance outfits telling practitioners when to do it, & how to do it. And they have one thing in common, which is they dont actually interact with clients. This is as a result of the corps act section 7, which should be stand alone & stripped from the act altogether. A recent law reform pow wow via zoom was stunned by the complexity & a statement was made by a QC that a judge would have trouble deciphering the intent of section 7. And the government wonders why affordable advice is out of reach to most Australians. A great analysis Paul. You have nailed it
Another person pushing their own barrow, at least the AMP directors were open about their motives
Keating mandated a retirement savings program but not the structure under which is would be distributed. From the moment it was announced in 1992 it has been seen as an opportunity for increased revenue, margin and a never ending source of fees income. Obscure, obtuse, confounding and clearly not fit for purpose – the banks, the licensees, the practitioners and the regulator ….. could we have had more of a confluence of self interest clashing head on with incompetence. Financial education is part of the answer but the real answer is structural reform.