Does general advice play a role in supporting consumers?
There’s a difference between general advice and personal advice. The problem for the industry is the consumer does not appear to care and the line separating them is not always clear. A 2019 research report commissioned by the Australian Securities and Investments Commission (ASIC) found that consumers find it difficult to understand the difference between general and personal advice, even when it is explained to them.
The paradox for advice providers is that general advice - which must not consider a consumer’s personal circumstance or make product recommendations - is at odds with the goal of personalisation for client experience, marketing and providing financial help.
The rule of thumb that general advice is easier to provide and promote to a wide audience has been challenged. ASIC’s case against Westpac is one of the few examples of case law in this area. It suggests the scope of general advice may be narrower than first assumed and that financial services are to be provided efficiently, honestly, and fairly .
Arguably, general advice has become too generic to be relevant to consumer expectations for guidance and help.
For advice providers, the restrictive boundaries and business risk of providing general advice mean the commercial returns may no longer outweigh the costs of providing personal advice. It is now accepted that personal advice remains even more difficult to produce because of the administrative burden; it is strangled by excessive regulation and red tape, making it expensive and putting it out of reach of most ordinary Australians.
The Treasury has been tasked to review how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors as part of the Quality of Advice Review.
With a report from the Quality of Advice Review not due until 16 December, 2022 and no certainty yet about when potential regulatory changes will come into effect, the industry should not wait for regulations to catch up - there are already options in the market seeking to make a difference to consumers and advice providers’ needs around personal advice.
The right technology can make personal advice very efficient for common use cases - covering the needs of many Australians - and digital has the potential to become the go-to channel for these needs.
Consumers often wait to build their wealth, and with it their financial confidence, before seeking professional advice. Access to an affordable entry-level advice option could encourage consumers to seek personal advice at an earlier stage. With financial products so readily accessible, helping consumers get strategic advice before purchase may be a small step to improved financial decisions.
Some superannuation funds and fintechs are already using digital advice technology to offer online and adviser-supported statements of advice. Midwinter’s digital advice technology underpins these types of services for some of Australia’s largest superannuation funds, collectively serving more than three million Australians.
Advice providers can use this technology to offer their clients more efficient, simple personal advice that is digitally engaging and may just set them on a path to building a longer-term relationship over their lifetime.
Digital advice technology also improves the efficiency of their entire advice process, from collecting client data to automating statements of advice that address the client’s circumstances and objectives.
Few advice groups and wealth managers are doing it today because they are not ready to invest or have become inherently conservative after years of excessive regulatory oversight. The unfortunate reality is, they are passing up an opportunity for significant growth.
A more efficient way to provide personalised advice could also help onboard a new generation of younger clients that do not yet have substantial assets but are set to spend or inherit trillions of dollars from their Baby Boomer parents.
These investors could benefit from advice but are often turning to less-than-optimal sources.
About 3.5 million (or 17%) of Australians aged 14 and over say they have been asked for financial advice by their friends or families, according to Roy Morgan research.
‘Finfluencers’ and social media sources are becoming a go-to source of information for generation Z, millennials and first-time investors. The reach of these unlicensed individuals has become substantial with ASIC now taking a closer look at their activities and warning companies to be mindful of regulatory risks when engaging the services of finfluencers .
These sources of financial information – or misinformation - are ultimately a form of competition, and whilst regulation may reduce the chance of poor advice, the alternative is to ensure more people seek good personal advice and the consumer protections it affords.
Advice providers can differentiate from the finfluencers by pre-emptively moving ahead of possible regulatory changes and help existing and prospective clients before they turn to friends, social media, or simply choose to go it alone.
A digital advice journey enabled through Midwinter’s software can provide personal advice around a specific topic such as retirement or insurance and is an ideal introduction for younger consumers, or those new to financial advice, who often have simple or single-topic advice needs.
By providing an accessible digital advice offering, businesses can minimise a clients’ reliance on alternatives such as general advice - or the sometimes-questionable information [advice] from finfluencers and chat rooms - helping their brand differentiate the substance of their offer.
The businesses that adopt digital advice technologies now may find they have a significant head start – and thus advantage – over their competition.
Steve Davison is chief commercial officer at Midwinter Financial Services.