In the next 12–18 months, many economists foreshadow a financial tsunami of distress to hit our shores, caused by soaring cost of living, interest rate hikes, rising rents, increased mortgage payments, rising energy and food prices, and lower disposable income. It’s quite a cocktail and with inflation set to be with us for years, we are set for distressing times for everyday Australians – so now is the time for action to make financial guidance and support accessible. This is a moral leadership issue, not a technology or government lobbying issue. No one is to blame yet everyone should be accountable for progress.
Looking ahead, one worst case scenario is that Australians are likely to turn to their savings or worse, simply rely on credit to survive their rising costs. If the latter starts, we have a massive social issue arising through increased credit card debt (at horrendously high rates) and yet no safe landing for millions when the credit limit is reached. No education, no guidance, no financial literacy, no help but lots of financial distress.
As the pressure mounts, we should be thinking about how to provide guidelines on consolidating debt, using super the right way and assisting with cash flow budgeting – yet the parties that own this space, the Super Funds, the financial advice market, and the banks, are in a state of paralysis fearing regulatory punishment for incorrect engagement in personal/general advice. Against this trend, it is clear we need brave corporate and moral leadership to “unite”, to carry some risk and to start providing accessible solutions through low-cost digitalisation to their members, their clients, and their relationships. It’s here already, it’s live and it can be owned by all who dare. Yet it’s still being debated.
In June 2023, the Otivo Superannuation Report found that a staggering 11 million Australians are desperately seeking more financial support from their superannuation funds. With rising interest rates and inflation at an all-time high, almost nine in 10 Australians (86 per cent) express their desire for financial advice from their super funds. Moreover, more than nine in 10 Australians (90 per cent) yearn for guidance on issues that directly impact their ability to contribute to their super, such as mortgage payments, overall cash flow, and debt consolidation. They want it, need it, and if it’s provided, the pressure is going to be contained if not eased.
There is only one way to address the sheer volume of demand and it’s the introduction of high-quality digital advice through what the regulator terms a “relevant provider”. The incorrect debate has been all around “lowering the standards” to allow accessibility through non-relevant providers, and yet, the standards can remain the same and the consumer protection level can also be maintained through a relevant provider using digital technology to provide retail advice.
Corporate Australia also has the opportunity to be doing more to help the average Australian – these are employees, everyday Australians who are being forced to sell homes, move houses, and dramatically reduce spending on everyday essentials, just to make ends meet. The corporates can introduce employee benefit packages around financial wellbeing making digital advice partnerships flourish and accessing the lower paid workers who need the most help. It’s a great employee benefit, it has fantastic social balance and it does the right thing by everyone.
Super Funds are essential owners of advice to the masses. Right now, superannuation providers are restricted in being able to provide sufficient financial advice, leaving more than 13.8 million working Australians with limited to no access to advice. We know Australians trust their super funds, so they’re perfectly positioned to provide scalable and affordable online advice to help more of their members. Yet they are struggling to commit to this development out of fear of failure and risk. Yet from the Otivo report, members obviously want to see movement across the board that acts quickly in helping them now, not just those Australians who are retiring or can already afford financial advice.
Australia has already taken steps to raise the standard of financial responsibility for retirement through superannuation. Now we need to take it further by ensuring that affordable financial advice is accessible to all, regardless of their income. Our goal as a whole should be to aim to achieve financial freedom and betterment for all Australians through collaboration between employers, super funds, financial advisers, and wealth companies.
It is time to be brave and embrace risk management by grasping the opportunity of low-cost delivery in assisting those who desperately need financial support. The solution to this issue lies in providing employers with financial support programs, such as employee assistance programs for their employees, while super funds must offer comprehensive and accessible financial advice through technology.
Where to? Corporate Australia, super fund trustees, banks of Australia, financial advice profession, the call to action is clear. Australians are in dire need of your help. We need to step up to provide, support and use the technology that exists that can step in and help those who need it most. It’s time to do more, come together and build a future where every Australian can achieve financial security regardless of their financial literacy. Embrace digital advice, its delivery, and onboard it as quickly as possible – it’s not about the risk of doing it, it’s all about the risk of not doing it.
Ian Knox is the chairman of Otivo
Ian, Digital advice has failed everywhere around the globe, it only works for Instos flogging their own products…..considering the track record of most insto products, consumers are better off with no advice from them.
A few misunderstood issues by the look of things – understandable that some think their offer is better if not best in class but this isn’t what I’m questioning. I’m questioning how we best go about providing assistance without product recommendation in the most cost effective way to millions of people. It would be useful if we all took the issue seriously enough not throw out every idea but staying with the past ( which failed). For those respondents threatened by digital I suggest looking closer into it – in my opinion it would be great if advises got the digital platform to work with their expertise so that it works in tandem. Most platforms offer access to clients through the advisers business. It’s called working together for the sceptics.
“No one is to blame” – congratulations, you have won the statement of the year award. Senator Jane Hume would be proud of you.
If you were given the mandate to come up with the most destructive, inefficient, conflicted, convoluted, confusing, misguided and over regulated mess for Financial Services, you wouldn’t have a hope in hell of getting anywhere near what has been created now.
It is so messed up, it is almost now at a point of having to completely start over.
There have been way too many uneducated and inexperienced contributors, too many snouts in the trough, too many misguided and misunderstood agendas, and too many elitist individuals whose ” holier than thou ” attitude toward Financial Advisers has completely skewed their vision.
You know, these elitist academics cannot accept or are unwilling to approve of a Financial Adviser running a successful practice earning 2-3 or 4 times what they earn…they just cant get their head around it, because of where they see their importance their small world, and in their own mirror.
I believe there is an awful lot of financial jealousy driven by these people because they believe they are important.
Well, you know what…. you do what you do well and let Financial Advisers do what they do well without trying to kill them off with biased opinions, over regulation and ineffective red tape and let the free market economy determine the value/cost equation.
Now run off like a good person, put your stupid looking merino wig on your head so you all look like part of your flock and go and deal properly with murderers, drug dealers, domestic & child abusers and corporate crime and leave the logical, sensible and cost effective method of delivering high quality, non conflicted Financial Advice to those who know how to do it.
Everything old is new again.
What really was the purpose of the Hayne Royal Commission?
What really was the purpose of FASEA?
Remember the pre 1990s, where advice, sorry products sales was the domain of the Life insurance companies who supposedly had a product solution to financial problems, lack of wealth creation, protection etc.
You could join many of these companies by simply fogging up a mirror, and so long as you could meet sales targets with great commission and bonus structures.
Then from the 1990s we saw the rise of “Bankassurance”, which was the demutilising of the insurance companies, with some even buying banks. Remember Colonial Mutual buying the State Bank of NSW?
The demutualisation inevitably led to most being swallowed up by the banks, who in turn had a product sales solution glossed up as advice.
And again very generous commissions and bonus structures, and a blind eye was always turned if they were producing the sales no matter what the indiscretions in some high profile cases.
Fast forward and after the many many reviews and then the Hayne Royal Commission decided that you actually couldn’t charge fees for no service, vertical integration was bad, sales incentives were bad and advisers were lowly educated and had to be degree or equivalent qualified.
So the banks became the go to cash cow for ASIC, with proceeds going to consolidate government revenue, with none of those massive fines funding the industry policing, nor any of those CEO perpetrators actually being fined or banned, but one of the consequences, be direct or unintended, was to strip the industry of many advisers.
Now, we don’t have enough advisers.
So now instead of Insurance companies, and banks, we now have the super funds are the now preferred sales, sorry advice options.
But don’t mention conflicts or fee for no service. Apparently nothing to see.
So when we get to Hayne mark two or three, we may find that sales, sorry advice was all about creating FUM for the super funds with limited strategies if they don’t lead to a benefit for the superfund perhaps still with a fee structure charged to all members.
And lets not forget all the accountants, who until they had to be licenced, always gave financial advice, set up SMSFs etc without mostly any written advice
Many a time a client has come to me and said my accountant has advised me to do “this” to which I always replied did he put it in writing to which the answer was no and nor would they.
Now Accountants, who many have left the advice space now also want a free entry to give advice again along with the lowering of education standards supposebly to even come close to providing the number of advisers needed.
I am surprised Mr Knox didn’t advocate for Platforms to be able to give advice, but why stop there. Perhaps Real Estate Agents and Mortgage brokers could be using one size fits all digital advice where everyone ends up with a property in a SMSF.
We all know how that works and ends, again when a product is the advice.
Why not give centrelink staff a licence to advise.
Again everything old is new again and what really was the purpose of FASEA.
Oh and where do any of our 10 or more associations, sorry professional bodies actually sit?
For their members?
How about this – to cater for the average Aussie battler, the government can create an independent unbiased website using generative AI tools to provide FREE advice to those Aussie battlers who mostly need to learn how to budget to spend less than what they earn, put enough into super and afford a home (which might be a unit) that they can pay off by retirement age. (I reckon even I know enough HTML to build a site like that, which bases the advice on a series of online questions). This website can be paid for by taxes and those fees charged by ASIC etc. Then the rest of us who have the means, complex issues and wealth to justify getting bespoke financial advice should get it from qualified advisers who charge accordingly. Not from product manufacturers. And get rid of much of the over-regulation that is really there to protect the less sophisticated investors who can now rely on the free government website.
Great ad for your product
Super funds will be about retaining the funds with their funds both pre and post retirement. Is that not a conflict of interest?
One can hardly blame Mr Jones for acquiescing to the 90% who want advice from their super funds. In addition to this, SMSF Association’s CEO is advocating for accountants to be able to give superannuation advice. It’s not looking pretty for us (advisers).
“Corporate Australia also has the opportunity to be doing more to help the average Australian” but they won’t without a profit motive. Who is the main driver of this crisis – economic rent seeking areas of corporate Australia, not the average Australian.
Great article Ian.