How to separate product from advice?
The Royal Commission is exposing the consequenses of a conflicted product-led advice model, but fixing the problem will take more than just regulatory reform.
It is confirming what the results of ongoing ASIC and APRA Reports have been telling us for some time. An ASIC Report published in January 2018, for example, reveals that the big four banks and AMP failed to meet the ‘best interests’ requirement in 75% of super fund switches.
It’s behaviours like these that are costing the industry. Poor financial advice, along with various scandals and alleged misconduct, have cost major banks and insurers $480 million in compensation since 2016 and given what we are hearing from the Royal Commission this may be just the tip of the iceberg.
Then there is the reputational cost. Financial advice is being viewed as conflicted, too product focused and serving the interests of vertically integrated financial services firms rather than clients.
The big question is, how do we fix this?
Do we wait for ASIC and the Royal Commission to bring down mandated change through regulation? Or do we proactively turn the financial advice model around to focus on its true sole purpose: helping people make better decisions about their money.
Do we wait for the stick? Or do we create our own ‘carrots’ that make the lives of our clients better, more secure and less stressed by helping them build their financial fitness?
Proactively re-building trust
We’re already starting to see a shift away from vertically integrated banking models and their inherent conflicts. However, the ASIC review showed that even when financial incentives were removed through the FOFA reforms, advisers were still far more likely to recommend the parent company’s products – and one in 10 clients were actually worse off as a result of this advice.
Fintech as an agent of change
Fintech has the power to transform product-led advice into consumer-led advice because it is making it it possible to embed self-directed online financial planning tools into advice-led models. Online financial planning tools allow people to experiment with options and access or update their financial information 24/7. There’s no product push and there’s no pressure.
This transformation means the industry can stop selling products and start offering solutions to needs that consumers uncover for themselves. Products become simply by-products of positive, proactive online engagement.
This actually represents an untapped opportunity for the advice industry, even beyond the 20 per cent of Australians who currently use financial advisers.
If our industry’s purpose is to help people reach their financial goals, then surely we should be helping every Australian with their financial fitness and well being? Those forgotten, financially-stretched other Australians still need fair dinkum quality advice.
Our own research shows one in two working Australians is worried about their finances – they don’t have enough in emergency savings, they’re stressed they won’t be able to retire when they want to, and healthcare costs and regular bills add to that pressure. Almost one in three are ‘financially unfit’. These are the very people who most need advice, support and guidance.
Clearly it’s not realistic to physically service every Australian with comprehensive, face-to-face advice, but fintech has the potential to enable every Australian to take the first steps towards building their own roadmap to financial fitness and freedom. This is the premise on which we built Map My Plan, a program which does just that and we are making it accessible to people enmasse by partnering with employers, advisers and financial institutions.
Employers, such as EY (Ernst and Young) provide the tool to their staff to help them reduce financial stress – and this also helps to increase their productivity. Map My Plan also allows advisers to expand the number of clients they work with without adding to their admin – and they know exactly when to offer proactive individual advice.
Banks, super funds and insurance providers can use it to positively engage with more customers, and provide solutions to help them meet specific goals in that moment of need.
In the changing landscape of financial advice, it is going to take more than regulatory reform to fix our core problems. It’s going to mean turning the entire advice model on its head.
Bernie Ripoll iis a director of Map My Plan and the former federal Labor MP for Oxley. He headed the so-called Ripoll Inquiry that led to the FOFA reforms.
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