Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Plans for a simpler, cheaper advice system
The Financial Services Council (FSC) is to now prepare a policy discussion (a ‘green paper’) for the industry and government, to be delivered in 2021, following the release of a major report by Rice Warner proposing sweeping changes to Australia’s financial advice system.
The Rice Warner report was commissioned by the FSC and discussed at the association’s Future of Advice Summit this week (October 20). Industry reactions to it will form part of the FSC’s green paper.
The summit was addressed by Senator Jane Hume, the assistant minister for superannuation, who said: “The industry is beginning to speak with one voice, which has made an enormous difference, especially from the government’s perspective. We don’t feel like we are playing favourites (between the various groups).”
Senator Hume promised the audience that the government would introduce legislation by the middle of next year for the proposed new disciplinary body, aimed to encourage standards and professionalism among advisers, as well as a “forward-looking” compensation system of last resort.
The main aim of the FSC’s role with relation to the financial planning sector, to which the Rice Warner report will add considerable impetus and weight, is to make financial advice more cost-effective and accessible. As part of this, it wants to encourage a restoration of trust in the industry, which Hume pointed out was the title (‘Restoring Trust in the Financial System’) of the government’s written response to the Hayne Royal Commission.
Danielle Press, a former fund manager (at UBS Global Asset Management) and industry fund chief executive (at EquipSuper), who became a Commissioner of ASIC in 2018, said the regulator was also keen to see a simpler, less costly industry.
“This is one where the advisers are trusted to use their professional judgement,” she said. “Where the advice process is not over-engineered by potentially overly cautious licensees because they distrust their advisers. And it’s an industry that works sensibly in articulating some of things that we need to see improve.”
Geoff Rogers, the acting group executive for advice at MLC, said the industry in future “definitely has to look differently than it does now.” He said: “From a client’s perspective, they want access to the right type of advice, when they want it, at a price that they’re willing to pay. And that is happening in some cases and it’s not happening in others. So, we’ve got to improve that and make it simpler.”
Nicole Salimbeni, partner and financial services and consumer business leader at PwC Australia, which co-sponsored the summit, said the current regulatory context was “almost unworkable” and that while change might be hard and complex, the ‘Future of Advice’ report pointed the way towards simplification. She said some of the layers of regulations, some of which were decades old, needed to be removed to make it easier to understand and implement proposed changes.
The main recommendations of the 40-page Rice Warner report are:
. The creation of new key definitions of: ‘General Information’, which will incorporate the existing definitions of ‘education’, ‘information’ and ‘general advice’; and, ‘Personal Advice,’ which will be simplified (for delivery purposes) by separating it into ‘simple’ and ‘complex,’ based on the extent of risk for the consumer.
. The ‘Best Interest Duty’ should be adapted to suit the category of advice being provided – general or personal (simple or complex). In delivering simple personal advice, it should be sufficient to review the case without needing a comprehensive analysis of the consumer’s needs. In delivering complex personal advice, the best interest duty should be reviewed because “the existing process is complex and time-consuming”, the report says.
. Encouragement to take financial advice: the report recommends that Australians be able to deduct the cost of financial advice for tax purposes, up to (say) $500 a year for single people and $1,000 a year for couples.
Michael Rice, founder and executive director of Rice Warner, said at the summit that when you work in an industry where all you see is a succession of problems and complaints, you know it is not stable. “If you have a system where costs are high and it’s complicated, it will drive people away… You can have a system which is simpler and won’t harm them.”
For example, for intra-fund advice, where the adviser was not remunerated specifically for that advice, it should be made simpler. “We know that people don’t read SOAs (statements of advice), just as they don’t read their insurance or mortgage documents,” he said. “But they will read three or four pages. You can then have a link to all the details.” Currently, SOAs are written by lawyers rather than marketing people.
While most of the speakers at the summit called for a greater use of technology to help ease the cost burden, Richard Dunn, a co-presenter and Rice Warner consultant, said that the majority of people, from any generation, still wanted face-to-face advice. “They want to have a conversation,” he said.
