For years, the industry has been pondering the financial advice model of the future.
We’ve sat in on thinktanks and joined in roundtables, we’ve made and read submissions and we’ve seen the Financial Services Council’s (FSC’s) green paper ‘Affordable and
Accessible Advice’, following on from its 2020 ‘Future of Advice’ report. Various industry groups have lobbied politicians of all persuasions and consulted with the regulators.
To what avail? Let’s start with the positives.
Research has provided us with valuable insights. We know that many consumers both need and want financial advice. We know that people who receive advice value both the advice and their advisers. More than 90% of our members want to stay in the business.
Industry research also tells us that people prefer to receive personal advice. Even the Australian Securities and Investments Commission (ASIC) has noted many consumers prefer to deal with an individual face-to-face. This allows consumers to build trust and rapport, rather than interacting with a cheaper, digital advice using an algorithm from a large corporate.
These findings appear to have led to a generally-accepted consensus amongst those with a vested interest in the industry that people need affordable access to quality personal financial advice. Let’s call that a goal.
But there ends the list of positives – because despite years of work, what we have seen is consumers less enabled to access and afford the quality advice they say they want and need, and a profession so hamstrung by excessive, and sometimes contradictory, regulation and legislation that delivering advice is becoming almost impossible.
HOW HAS THIS HAPPENED?
Successive Governments and the regulators appear to have formed a view that consumers must be protected and relieved of financial responsibility, for their own good.
Recent evidence of this ideological standpoint is a joint Australian Prudential Regulation Authority (APRA) and ASIC letter sent to registrable superannuation entities (RSEs) on 30 June, 2021, which conveyed an expectation trustees check sample statements of advice (SoAs) to see that members paying for financial advice from the fund have actually received that advice, a position which according to some commentators, may breach Privacy Act obligations and which we suggest smacks of interference of the state into the private affairs of the individual.
However, the question we must ask ourselves is: how have the Government and regulators arrived at a view that so insults the intelligence of consumers of financial advice and is so disrespectful of financial advisers?
The answer is: a series of product, fraud and advice-related scandals which tarnished the reputation of financial advisers, almost beyond repair. This led to a profound lack of trust at a Government and regulator level, and amongst Australians who are not financial advice clients. It was fuelled by a mass media which failed to recognise that advisers were made scapegoats.
Our industry has been, and probably still is, thick with vested interest power players who, while paying lip service to consulting with consumers and advisers, made decisions in their own self-interests with little,if any, genuine regard for the impact of those decisions on consumers or advisers.
While there were exceptions, just as there are in every profession, for the most part, financial advisers operated honest businesses, providing advice which their clients valued, within an imperfect financial advice model. When things went wrong, blame was placed not only on the power players but also on small business financial advisers.
And so, we come to the ‘remedies’ meted out by Government and the regulators in response.
The narrow focus of the current Corporations Act, Section 7 on financial product advice was already a long-standing problem. Failing to effectively address it resulted in various legislation and regulation being tacked on over the last 20 years, without much consideration around how they could be effectively implemented. Some of the ‘black letter’ legislation is impractical or impossible to efficiently comply with, for example, financial disclosure statements (FDS) resulting in the recent shift to annual advice agreements.
At every twist and turn, ‘solutions’ to problems and failures in the industry have involved tacking on yet another confusing piece of legislation, regulation or ‘guidance’ and introducing business-destroying fees, levies and penalties. While those decisions were made with good intentions and within the context of the times, with hindsight we can see that they have contributed to making advice even less affordable and less accessible.
The Australian Law Reform Commission review of Chapter 7 of the Corporations Act is a positive step, but only if it results in the significant changes necessary to address the issues of the past.
As I write, ASIC just provided feedback on responses to its 'Consultation Paper 332 Promoting access to affordable advice for consumers’ (CP332) and consulted via a series of roundtables with advisers, licensees, and industry associations – but not with the two consumer groups who made submissions.
Based on the feedback received, the regulator says it has, ‘identified a range of ASIC-led initiatives that will help industry participants to provide good-quality, affordable personal advice to consumers.’ ASIC says it intends to move forward with these initiatives as resources permit.
But with the greatest respect, will these initiatives really help the industry move closer to its goal? Much more importantly, will these initiatives deliver what consumers have told us they want?
In the words of Albert Einstein: “We cannot solve our problems with the same thinking we used when we created them”.
The time for discrete pondering by different sectors of the industry is over. The time for consultation is over, the time for imposed solutions is over. It is time for genuine collaboration. Only when all players with a vested interest in the industry, particularly consumers, can genuinely collaborate with all other players, will the necessary, fundamental change happen.
We believe there is a once in a generation opportunity to look at the future of financial advice and balance the need for consumer protection with the need to give Australians affordable access to quality personal financial advice.
I suspect what we will find when we do genuinely collaborate, is that we need to tip the financial advice model on its head and think about it from the consumer perspective.
THE SCIENCE OF COLLABORATION
Genuine collaboration means working together in a spirit of cooperation for the common good. It requires an innate willingness to work together, and recognise that we have different perspectives. While this sounds like more art than science, collaboration requires not just people, but also policies, processes and technology.
Australian collaborations architect, Marek Lis, has created the Platinum Project (Chart 1), which outlines a Big Hairy Audacious Goal (BHAG) as to how Australia might design the best financial services industry in the world in around 18 months.
Lis observed that we have reached a state of stagnation because all stakeholders have not yet clearly defined what success looks like. One of the first steps we therefore need to take is to establish our definition of quality. “By allowing all stakeholders – including consumers – to participate in the creation of the solution, the outcome will be much better than we imagined,” he says.
ALIGNMENT OPTIMISATION TECHNOLOGY
But this is no mean feat. Pulling all players into the tent means there will be, as Lis recognises, “hundreds of opinions from thousands of participants”. The more the better – and the most efficient way to deal with this, he says, is via Alignment Optimisation Technology (AOT).
AOT helps synthesise diverse opinions to arrive at a consensus, and work efficiently towards a consensus goal, via an agreed and co-ordinated set of actions. Although a comparatively new organisational science (and technology), it is already being used by a wide range of Fortune 100 companies in the US.
Lis argues that no other methodology can uncover consensus around quality as effectively, nor as quickly, and no other methodology can effectively pinpoint clear roadmaps.
That’s the high-level art and science of it, but what would it look like for the Australian financial services industry? Lis has broadly mapped out at an indicative timeline for implementation:
Aligning opinions (eight months)
- Recruitment of all stakeholders: two months
- Measuring alignment: six to eight weeks
- Convergence of alignment: three weeks
- Resolving misalignment: three months
Implementation (six months)
- Collaborative design, roadmaps and action plans: three months
- Action plan implementation and resolution: three months
Monitoring drift and constant improvement
- Conducted every six months
If everyday Australians are going to be enabled to access affordable, quality, personal financial advice when they need it and the Australian financial planning profession is to survive and thrive, we must all set aside our differences and start collaborating on a new model for financial advice now, and not a moment later.
Neil Macdonald is chief executive of The Advisers Association.