It has been six years since Sydney hosted the Olympic Games and we are getting close to finishing the first decade of the new millennium. It’s scary how fast time is going by, isn’t it?
I say that because the rate of change in all sectors of the Australian economy seems to be picking up. Think of where the financial services sector stood six years ago compared to today. Now imagine where it will be in another decade or two.
Probably the biggest change to hit the sector this century has been the introduction of Financial Services Reform (FSR).
The genesis of FSR was actually back in the 1990s, but it has clearly set the tone for the 2000s.
But a bit of context first. All of us were born last century. Many of us are Baby Boomers. We are generally financially well off largely due to property values. We should all have a pretty good start on superannuation savings either through the Super Contribution Scheme or voluntarily savings, and we are all well educated.
As Boomers, many of us have benefited from free education, universal health care and enjoyed a generally all-embracing social welfare system.
By the year 2020, the last of the Baby Boomers will be ready for retirement at 60 and, if the Government doesn’t change the rules, will be eligible to take out their superannuation savings tax-free. There could be some big cheques written and large sums to be re-invested between July 1, next year, and 2020.
Following the Boomers, Generations X and Y will have had up to 36 years of compulsory super savings. They might not have enough to retire on, but they will have quite a lot of money to think about.
If recent trends are any guide, these groups are not necessarily loyal to what has gone on in the past. They could be keen to explore new savings, investment and life insurance options.
Going back to the Baby Boomers. They will be ageing — from 60 years up to 76 years. They will be placing enormous strains on the economy in terms of health and aged care and will be asking governments to top up any shortfall in retirement savings.
My guess is that going forward, governments will have a problem with that. They will be looking to individuals to arrange for many of these things themselves. They will also be asking Generations X and Y to do more.
At a guess, I would expect life insurance and health insurance to be considered by governments as important components in meeting those needs rather than relying on existing social welfare structures.
Where am I going with this scenario? Back to where we are today and where things started to develop back in the 1990s for the financial services sector.
As I mentioned, we now have a generally strong community financially that is also well educated. The latter means people will be seeking advice on financial matters but, at the same time, they are not going to accept it blindly.
FSR was all about ‘consumerism’. It was all about making financial advice transparent so the consumer could decide. We now have the debate over up-front fees versus commissions, but disclosure is there. It might be cumbersome and in need of fine-tuning, but it is has put power in the hands of the consumer to decide.
Adding to the power of the consumer has been technology.
The Internet now allows consumers to compare and contrast products online so when they do visit a financial planner they are often very well informed.
Going forward, as more technologically aware people move through life this trend will develop further. Not only will the consumer be more fully aware, they will want faster service. Advisers and planners will have to link with online financial service providers to get near instant results. Look at the take-up speed of Internet banking as an indication.
The rate of change is, indeed, picking up.
Six years ago we were all content with dial-up Internet access on 56k modems feeding into desktop computers with only megabytes of capacity.
Now, anything less than high-speed broadband linked to several gigabytes is way too slow. And a wireless link to a laptop will allow the potential customer to do the research while sitting on a park bench.
The consumer will want information, they will want it immediately, they will want it in an easily accessible form and they will want quick answers to all questions. The consumer will be king and the industry has to meet that challenge.
At the high-end of the market, advice will be more important and specialised. In terms of life insurance, more diverse products will be available to meet specific needs and the information will have to be readily available.
The advice sector, therefore, will have to make sure it lifts its game to match these increasing demands. The consumer will ask, and if the adviser cannot answer the consumer’s questions they will move elsewhere. It is going to be a tough environment.
The good news is consumers will not expect to get advice for free. Obtaining basic information will be free, but there will be a recognition that good advice will be valuable and come at a cost.
A well-educated marketplace will appreciate that good long-term planning and advice will be worth more than the expense. It will be a value-add.
Jordan Hawke is head of retail sales, product and marketing, at Tower Australia .
