The latest report in ASIC’s review of Australia’s financial planning sector, the Wealth Management Project, contained few surprises for those watching the unfolding crisis of confidence in the sector.
Following on from the investigations earlier this year into a number of institutions that charged clients for annual advice reviews or other services that were never provided, it highlights the continuing gap between the expectations and actual outcomes of financial advice across the industry.
The report, Financial advice: Fees for no service, found Australia’s largest advice firms owe compensation of around $178 million plus interest to more than 200,000 clients who never received the advice they were charged for.
It’s important to note that many of these failures occurred before the implementation of the Future of Financial Advice (FoFA) reforms.
Continuing the work of the Ripoll Report, which led to FoFA, ASIC continues emphasising the importance of developing a professional sector, with stronger and more consistent education requirements and duty of care standards at its core.
Yet it’s clear that education is only the first step in a long journey of much-needed reform. It’s time to clear up the murky tension between product sales and financial advice.
The value gap
Map My Plan’s research last year uncovered a significant problem with the level of ‘financial fitness’ of working Australians. The latest figures for 2016, to be released next month, show nothing has changed in 12 months; despite review after review into our financial services sector, 50 per cent of working Australians are worried about their personal finances, and one in three say it’s a major cause of stress.
Having a comprehensive financial plan is the evidentiary cure to many of our financial fitness woes – yet just 15 per cent of working Australians are using a financial adviser and 37 per cent have no financial plan at all. Not even a rough one.
“I’m on track (I think), but I don’t really know what I’m paying for,” admitted one respondent to our survey. To us, that sums up the real issue for this sector: individual outcomes are unclear and there’s no perceived value to the services provided.
Hardly surprising given ASIC’s review. Many of those services were never provided at all.
Put people first – not products
The underlying problem is this: clients still aren’t at the centre of the financial planning model. Financial products are. And clients won’t perceive value in financial advice – value worth paying for – unless it’s about advice for the clients and not about the products.
Even the process of applying for an Australian financial services licence starts with the products offered.
Imagine if the process of medical registration focused purely on prescriptions provided – instead of the practical skills and knowledge GPs need to diagnose a problem and provide a treatment plan.
That’s what everyday Australians really need if they’re going to get their financial fitness back on track.
‘Client-first’ advisers still a minority
We’re seeing some great financial planning firms and advisers take on this mission with a ‘client-first strategy’ – but they are still in the minority.
Of those who have used a financial planner, according to our 2016 data, 63 per cent had a positive experience. Clearly some are getting it right, but given the high cost of advice (and the personal cost of poor advice) we’d hope that number would be much closer to 100 per cent.
If doctors got it wrong 37 per cent of the time, we’d certainly be worried about the state of our health system.
It’s time to break the link between product and advice.
Cost and trust are still the big two barriers that prevent more working Australians from seeking professional advice.
The latest ASIC review will only heighten the public perception that financial advice is a ‘rip off’. Educating financial advisers to degree level and imposing a code of conduct will eventually bring cultural change. But consumer trust – and even respect – will only come when advisers can prove they provide clients with tangible value through sound financial outcomes.
Separating product from advice is fundamental to creating a financial planning profession – and it will take more than a degree-level qualification to fix that.
