The Tinbergen Principle, named after a Dutch Nobel Prize-winning economist, states that in addressing complex economic dilemmas, sustainable solutions require as many instruments as there are policy objectives. In translation, this means “one size does not fit all”.
According to a pair of former financial planners who recently penned a white paper seeking a way forward for the wealth management industry in a post-Hayne, post-Levy world, this principle can be applied to financial advice to ensure advice models are fit for consumer needs.
The authors of the paper, Harry Chemay and Brett Ebedes, argued that there is one dominant ‘instrument’ being bluntly applied to the varied advice needs of Australians of varying demographics, socioeconomic circumstances, financial literacy, engagement preferences, and price point sensitivities, and that is “comprehensive pre-retirement personal advice encapsulated in an unwieldy SOA implemented via an adviser”.
“The advice sector could continue with this approach, and it would almost certainly perpetuate the issues currently constraining advice accessibility, as well as its own growth prospects. Or it can choose a different path,” Mr Chemay and Mr Ebedes said.
In essence, much like the QAR reviewer Michelle Levy, the pair suggests that Aussies engage with financial advice across multiple decades in ways that shift over that timespan.
“What therefore is needed, is a breath of ways to engage with the varying advice needs of consumers across life-stage and wealth cohorts,” Mr Chemay and Mr Ebedes said.
While the pair believe that technology presents the best opportunity to close the advice gap in the short term, they also argued that improving financial advice affordability and accessibility rests even more so with appropriate amendments to the legislative framework surrounding advice provision.
“It is clear that there is a reticence to sail outside the ‘safe harbour’ enshrined in the definition of best interest duty, with the ‘catch-all’ provision of Section 961B(2)(g) proving particularly problematic,” the pair said.
“While this remains the case for personal financial product advice, risk-averse compliance committees will continue to enforce advice workflows that preference costly comprehensive advice over less expensive, lighter-touch scaled advice,” they continued.
“It is therefore hoped that the current inquiry by the Australian Law Reform Commission [ALRC] into Australia’s financial services legislation, including a review of key definitions such as ‘Financial Product Advice’ and ‘Retail’ versus ‘Wholesale’ client definitions, will yield recommendations for pragmatic changes to Chapter 7.7 of the Corporations Act 2001.”
Moreover, the former planners hope that the final ALRC report, due in late 2023, may incorporate elements of the final QAR report, particularly those regarding personal versus general advice.
Ultimately, the pair flagged the benefits of a wide range of “robust, engaging, appropriately regulated and inexpensive alternatives” to traditional advice.
These, they said, include robo-advice and next-generation, investor-directed portfolio services.
“These solutions point to a hybrid advice future, where the interaction between consumer and adviser might evolve along a spectrum over time, starting with a highly digital, near self-serve model and evolving toward a human-centric relationship as retirement approaches,” Mr Chemay and Mr Ebedes concluded.
So what is advice is not accessible to all? Who says it should be? Having a house cleaner is not accessible to all. Neither is private health insurance, nor having a master builder build your home nor an interior decorator decorate it and so on. If I have legal issues, I get pro-bono legal aid, or I an stump up and get the best lawyer in the country. That’s up to me. Some advice should be accessible to all, but that doesn’t mean that I need to dumb down what I do nor cheapen it. There is no gap in my end of things, if there’s a gap at the lower end of town, let someone willing fill it, but don’t expect it to be the same thing.
We live in a world (not) where Doctors waste days of actually treating people because they’re writing 60 page documents explaining the pro’s and cons of treatment. Not only that before performing any surgery it’s going to take at least multiple consultations, even to just to “scope” out the treatment and let’s not get started on getting consent for them to charge their fees……Therefore to increase the numbers of Australians seeking medical treatment we should encourage them to only seek hospital treatment when they’re dying not some minor illness. I would have thought the solution would be to fix the bad regulation? Perhaps allowing me to get a Fee form signed one day prior to the anniversary date. I could write a SOA in about 3-5 pages any at that length I’m 100% certain the client would read it.
The paper itself is worth a read – the point about the story of the many happy consumers of advice never being well told resonates. All we ever hear is how there are too many rogue advisers and apparently no trust in advice.
No wonder they are ex advisers. Personal engagement is one of the most important elements of planning. Imagine applying their principle to Solicitors , Accountants , Builders or Engineers to name a few other professions.
I think you’re missing the point. Not everyone wants that…
Builders are not considered professionals.
Builders usually deal with someone’s most expensive asset so they are professionals in my view. They may not be trusted professionals but I can’t think of any “profession” I personally trust. Without reading their whole report ASIC operate on a one size fits all approach so anything which doesn’t work that way is null and void as an opinion piece.