The deputy chair of the Australian Securities and Investments Commission (ASIC), Peter Kell, knows he’ll get cynical reactions in financial planning circles when he says there will probably be far less regulatory scrutiny in the future.
He is quick to acknowledge planners have faced regulatory heat in the last decade, but says it has been a direct result of poor practices of the past that have now, in large part, been addressed, if not yet totally resolved.
He says that although there is still entrenched resistance to new professional and education standards in pockets of the industry, “I genuinely believe we will get across that within the next few years”.
Kell says an element of working through the issues may be “some structural changes in the industry on that front” and that a decade from now, the sector will be “working much better” than it has historically. He says he can “assure everyone in the industry that it is the very clear desire of ASIC” to reduce the regulatory oversight of financial planning.
“I can tell everyone in the industry, that is the very clear desire of ASIC,” he says. “We do not want to be in a position where, in 10 years’ time, this sector is subject to the same level of regulatory scrutiny it is at the moment. That’s why we’re so committed to getting these [education and professional standards] reforms right at this point in time.”
Full impact still unknown
The announced reforms have been directed primarily at lifting the standards of individual advisers, improving the quality of advice and “driving out the problem players” to help improve trust and confidence in the industry.
Kell says the impact of those regulatory changes has yet to be fully felt and appreciated.
“You have the changes that have come through with Future of Financial Advice, you have the introduction of the financial advisers register and the opportunity to build on that moving forward, you have the reforms to life insurance advice, and you have the major changes that are coming through with the professional standards regime,” he says.
“These will take years to really properly flow through into the way the industry is structured and works but, collectively, we’ll look back in three or four years’ time – even before we get to 10 years – and see that those policy reforms will have [made] a major change in terms of raising standards, improving the accessibility of advice and reducing the conflicts of interest that have been the source of so many problems over time.”
Kell says it’s clear that some practitioners already measure up to the new education, professional and ethical standards and are essentially future-proof, but others will need to work to make up the required ground, and still others will opt to depart from the industry before the new requirements kick in. But however the changes affect planners individually, they will ultimately be for the greater good.
Kell says the impact of those regulatory changes has yet to be fully felt and appreciated. There is already a vast amount of change for advisers to digest, and while Kell says he is aware of the current idea of revisiting the adviser licensing structure – and the concept of moving to an individual accreditation process led by an independent body – he cautions against looking too far ahead.
The last of the latest round of reforms does not come into effect until 2024, and he says it is “really important that we allow that collection of significant reforms to play their way through the industry and to help with standards” first.
“And then, of course, you do have some industry-led reforms as well, whether it’s the life insurance code or the industry codes. It’s important to look at how they can work, not only [asking], ‘How do I comply with this particular clause?’…but [thinking] culturally, what’s the attitudinal change? What’s the change they’re going to foster in terms of how advisers interact with their clients?”
Technology’s large role
Regulatory reform alone, Kell says, won’t transform financial planning – far from it. He says he is excited about the enormous potential for technology to augment the advice process and improve results for consumers.
“Technology will facilitate a much better interaction between advisers and their clients, in a whole variety of ways,” he says. “Behind the scenes, technology has the potential to really improve compliance but, up front, which is really where it matters for the consumer, [it can provide] the far greater ability to understand what you’re getting, to interact with your adviser in ways where you do not necessarily have to have the full-blown face-to-face meeting. It may be easier to get more limited, discrete bits of advice around life events. You can see technology having a huge impact.”
Kell says he believes a basic human-to-human relationship will remain fundamental to the financial planning process, and that technology will be best used to augment that.
“I am optimistic about the potential impact of technology in this sector because, to be blunt, it’s been too low-tech for too long,” he says, adding that transparency is one area high-tech can improve.
Any relationship built on trust and confidence, not to mention respect, needs to be transparent, and Kell says advisers must be prepared to be open with clients about the financial planning process and its consequences. He says that in financial planning, as in many industries, there is “a greater expectation around transparency and what you’re getting, why you’re getting it and how you’re getting it”.
“Too much of the finance sector has been black-box, in terms of why am I being recommended this strategy or this product, why am I being placed in this risk category, why am I being asked to put my money here rather than there?” he says. “Greater transparency will be facilitated by technology. There’s greater transparency demanded of regulators, that’s abundantly clear. It’s expected of all of us. And that’s a good thing.”
In his position overviewing the financial planning industry, from issues at the individual adviser level through to the string of one-off issues within institutions, Kell says a recurring theme has been a poor understanding by consumers of what to expect from an adviser.
“Technology ought to be able to help that at one simple level, in terms of documenting what you’re providing, and why, to your client,” he says.
It will also address another perceived shortcoming in those value propositions that are based on the adviser’s ability to pick the best performing fund, stock or other security, and help advisers focus on activities that genuinely add value.
“For too long, for at least some advisers, the promise was, we’ll find you the top-performing fund or investment for the next six months – bang, we press the button on that,” he says. “That is actually not really where advisers can add the most value, and frankly, that’s where you’ve got a bit of the black-box mystery.
With technological advances, there’ll be far more focus on the relationship. Some of the areas that were previously supposed to be where you added value, like choosing the investment that’s going to be the top performer for the next few months, can potentially be dealt with through [robo-advice] and other forms, while you, the adviser, are providing a strategic and goals-based overview for your clients.”
For an older Australia
The future for financial planning remains unequivocally bright, Kell says, even if the regulatory changes have felt like a dark cloud for many practitioners. Once the current round of reform is bedded down, an industry will emerge that will be well suited to meeting the changing demands of an ageing population, and potentially much more trusted.
“The advice sector overall has a lot of potential to help people as they age, and in the decumulation phase,” Kell says. “ASIC recently has been looking at aspects of advice in the interface between financial management and aged care. These are areas that, because of the ageing population, will be crying out for a profession that can deliver value for money and help people during that phase of their life. At the moment that’s, I think, under-catered for, and there’s enormous potential for the sector to rebalance its offerings.”
An offer based on long-term needs – individuals may be in decumulation for many years after retirement – makes the advice relationship necessarily less transactional in nature. Kell says this provides the potential to create multi-generational client relationships.
“You’ll be dealing with a client and potentially their adult children – or the other way around, the adult children and their ageing parents – in ways that can make a huge positive difference to people’s lives,” he says. “There’s no doubt to my mind that’s a gap at present. It’s a very challenging area because, perhaps more than most others, there’s an emotional element to it when you’re potentially advising people on what to do with their house or issues that may impact on the inheritance.
“But hey, that’s what this sector, if it works well, ought to be able to do.”
More advice for more people
In the future, Kell says, technology and regulation coming together should increase the scope to “provide more discrete, scaled pieces of advice during the life of a consumer, rather than necessarily having the one big-bang bit of advice”.
“In that sense, hopefully, technology will help improve the cost-effectiveness of advice as well, so that relationship can be extended to a larger portion of the population,” he says.
That, after all, is the name of the game and the regulator’s ultimate objective, despite any lingering cynicism surrounding Kell’s hopes for a lighter regulatory touch in the future. Financial planning has a hugely important role to play in the wellbeing of individuals and the nation as a whole, but its potential will be fulfilled only if consumers trust it to do what it says on the tin.
“The issues we’ve been talking about are not going to mysteriously become less complicated over the next 10 years – the way people have to think about their retirement planning, their superannuation, how they care for relatives and how they cover their own health costs, and so on,” Kell says. “You would imagine the need would continue to be there. The question is how can you cover that off? The industry is grappling with how to have a model that doesn’t require you to sell something at every point in the process. That will become increasingly a thing of the past.
“Obviously, people still need good quality financial products, but the notion that the only way to financially sustain a relationship from the supply side is to sell things has to change. There have to be other ways of getting advice to people.”
