As the Royal Commission has ushered in the need for increased compliance to ensure advisers are acting in the best interests of their clients, it has accelerated a move to a fee for service model and increased costs in delivering advice. The unintended consequence of this shift is that financial advice is becoming increasingly out of reach to many middle class Australians. This is a big dilemma for the industry and we are seeing some real challenges from the attempts to achieve two outcomes. On one hand is to develop an affordable advice model, on the other is that it also ticks all the compliance boxes. It should be possible to do both and there’s strong evidence to show that technology is the answer to achieving just that.
When the economy went into lockdown earlier this year, we saw an immediate response by ASIC to temporarily suspend various red tape requirements for financial advisers and superannuation funds, in an effort to assist them in providing “affordable and timely” advice to consumers affected by coronavirus. Measures included removing the requirement for financial advisers to prepare a “statement of advice” document to clients when providing advice about early access to super. Since then the debate has raged over whether this was a step too far by the Federal Government in allowing people to raid their superannuation savings well before retirement. There was also a recent decision to lift lending restrictions, in what many believe to be a misguided effort to give consumers and small businesses access to capital. Plenty of unintended consequences to unpack in that one. Regardless of your view on these controversial policy decisions by the government, it has opened up a dialogue about how the industry could do more to support limited advice solutions.
There was an article in the ifa last week about further measures by ASIC to support this initiative, all with the intention of making advice more affordable to the many Australians who desperately need it. In the article, Kate Metz, ASIC senior executive for financial advisers, suggested that the regulator itself was openly encouraging limited or scaled advice but then seemingly pointed the finger at the advice industry for not embracing this approach. I’m not sure that is a fair assessment on where most advisers see things, but I would agree with her comments that better communication with industry participants (and collaboration) would be helpful.
So what could ASIC, in conjunction with the industry bodies, do to help make progress here? Again, I think technology holds the answer. For starters, we need to find ways to remove the inefficiencies in the advice industry, so that consumers aren’t paying for the things they shouldn’t have to such as administration, compliance and back-end systems. Compliance is not going to go away but there are some efficiencies needed to bring costs down. This point has been well articulated recently by Dante De Gore, CEO of FPA. He advocates the adoption of technology and in particular, open access to data to allow advisers to perform their advice function more efficiently. Acting in a client’s best interest starts with knowing the client and understanding their financial situation. And for many advisers, too much time is spent running around trying to collect the data to solve that very problem. myprosperity solves that issue and we will see continued improvement in efficient access to data as the government embraces the Consumer Data Right movement. There has also been recent commentary from Jane Hume, Assistant Minister for Superannuation and Financial Services, about wanting to see regulators provide the “compliance green light” on robo-advice and algorithms used in advice technologies that can augment and streamline the advice process.
The bottomline is that governments will continue to make policy decisions they believe will support large cohorts of the population, and appease their many constituents but they may not always consider the impact on the advice industry. What we have to do as an industry is find ways to be more efficient through technology and ensure that we are in the best position to focus on the client needs, no matter what the regulators, government or global health situation throws our way.