The storm that has brewed since the royal commission inquiry began has been a spectacle of “shock and Orr”, for sure. We have seen everything from forged signatures to “fee for no advice” to client misrepresentation.
Clearly a series of controls failed – consistently and simultaneously across different organisations. Central to this mess is the lack of respect for the trust we held in the institutions and people who manage and grow our life savings. I think it is fair to summarise the saga with the phrase “incentives drive behaviour”.
The bulk of the media focus has been around the lapses in conduct and processes within financial institutions. However, I wondered what role should consumers play in fixing this problem along with their advisers?
We Australians pay special attention to the key relationships in life –– our life partner, our children, our employer. We acknowledge that there are elements of accountability from all parties involved in these relationships. So, why is it that we spend little time thinking about our money and those whom we entrust it with?
While we all hope the royal commission, ASIC and others work cohesively to redefine the corporate rules of engagement, I think we as consumers would benefit from playing a more active role in our own financial affairs.
There is hope for financial advice
To formulate an educated view on the current sentiment, we undertook an informal opinion poll of a cross section of 50 Australians. It turns out there is still a sense that financial advice is important, which bodes well for the industry.
Participants trusted their adviser and seem to have a strong bond with them. In fact, it wasn’t uncommon for the individual to believe that their adviser was honest and that “others” in the industry were perhaps the rotten ones.
Melbourne-based Aditi Daware has a young family. She and her husband continue to believe in their adviser and echo this need for honesty and trust.
“Being open and honest with your adviser makes the relationship stronger. Also, once the adviser knows that you trust them genuinely, they will assist you as much as they can,” Ms Daware said.
It was heartening to see this connection still exists, but the findings from the royal commission have provided a wake-up call for others.
There is an awareness of the need for being in control. Clients want to play a bigger role in managing the relationship and to be empowered in the decision-making process.
Michael Light, a long time Sydneysider who has had a financial adviser for over 20 years, said, “The current climate demands greater openness from our financial services providers. Consumers should be empowered to question more than ever before, and I think this can lead to more of a partnership relationship than a supplier-buyer one.”
Transparency builds trust
Financial advice is regulated because financial products are complex, as is the process of defining and achieving one’s goals. Advisers are responsible for understanding our needs and the market to be able to provide guidance on building a financially secure future.
In doing so, they need to ensure full transparency in their conduct and remuneration. Perhaps there was a degree of complacency among retail customers in the way they managed the adviser relationship.
Most clients would have a detailed initial consultation, receive an advice document, investment certificate or insurance policy, followed by limited and in some instances no service. Our research indicated that clients are now keen to play a more active role in the process.
As Dominic Moore, director of 325 Consulting, said, “I think being clear on what you want as the consumer helps narrow the focus for your financial adviser. After all, there are many choices they can propose so we are also part of this process, if not more so than they are, given it’s our money to begin with.”
So, what does this mean for advice businesses?
It was evident from our quick poll that most clients trusted their partner-in-finance. We are also certain that many advisers (if not the majority) love what they do, which is to provide their clients a better financial future.
However, as the royal commission has highlighted, there is no substitute to absolute clarity and transparency in life’s critical relationships.
Every headline about an adviser being banned, or a licence being withheld, sows seeds of doubt in clients.
While there have been many sources of competitive advantages for businesses to differentiate themselves, we could be witnessing an era where advisers will use “trust” as a source of competitive advantage. In fact, trust is the one thing that we cannot acquire overnight – it is just built over time by doing the right thing at every step of the relationship.
Businesses that can deliver tangible trust metrics will clearly win over those who have shades of grey in their customer relationships.
A balanced partnership means everyone wins without a huge overhead driven by policy enforcements.
Sandeep Rao is the chief executive of client engagement software firm Bondle Australia.
It is great to have a positive article about our profession. I have been in financial services for over 25 years and hold my licence through AMP which is obviously challenging at the moment with all the bad press they are receiving. However, for me, I still love what I do!
The Royal Commission has actually been reassuring for our firm with the majority of our clients being more worried for us and the stress this has brought upon our team than how it will effect them personally.
There are not many professions like ours that have the ability to help so many people in so many different ways!
We are so much more than salespeople… we are business partners, wealth creators, wealth protectors, educators and sometimes marriage counsellors and motivators.
The royal commission along with the increased barrier to entry with higher education standards will make our profession better in the long run and help portray our value in peoples lives.
Sounds all lovely, but the reality is the powers to be don’t care about your relationship with your clients. They want you to provide advice, charge for it and move on. It will become an administration and compliance nightmare to continue charging ongoing service fees. Your “under the pump” licensee cannot wait to haul you in front of your peers as an example of an authorised rep who did a bad thing by being late with a review and charging for it…..which leads me to the next question. If we recommend an annual review and meet the client annually, why are most of us charging monthly? Shouldn’t we charge annually?
Financial advice is regulated to the extent it is not because financial products are complex, but rather because there is low trust (from both government and the community) in the advice industry. There are many industries whose practitioners deal with far more complex matters and who are far less regulated than what financial advisers are. Only when trust in advisers is widespread will there be a prospect that regulation will decrease
that’s true, and that trust dial can be increased by ensuring all those who call themselves financial advisers have at least as a minimum standard a post graduate qualification.
yet, the industry refuses to accept this and is recalcitrant until then we will be viewed with contempt by government, regulators and the public
that’s true, and the trust dial can also be increased when professional associations stop getting payments from product manufactures like AMP/CBA and represent planners and Australians and not large institutions. Yet FPA members refuse to accept this and are happy to belong to an association that accepts this conflicted remuneration. Ending this relationship is a very simple thing all planners could do to become more professional and within their control today….but they just don’t care. Imagine if we stepped up now and said enough.
I just don’t think planners care about being professional and so will be eventually regulated out of existent. Most likely the next to go (within the next 5 years) are re-occuring advice fees. It would be impossible to run a FP business without this relationship, as providing one off event based advice now costs thousands.
There is no surprise that the feedback on advisers was positive because it came from clients in an existing relationship. The negative feedback generally comes from those with a cynical attitude and next to no experience with an adviser. It is also well known that those least willing to pay for service are also the most critical and have no interest in the welfare of the advice business. It is all about them and getting whatever they can for free or next to nothing. You cannot build a business to target them as they will do whatever they can to drive price down and will have no loyalty. They demand the whole world revolve around their needs. Ironic given that is the basis of their criticism of the advice industry.