Up to two million Australians need financial advice but aren’t getting it, according to Patrick Garrett, co-founder and chief executive at Six Park. They aren’t looking for full-priced, holistic financial advice, he says, just investment advice to get them through to pre-retirement and the “complicated, face-to-face stuff”.
Despite concerns about how scaled advice can stay compliant, Garrett believes it can bridge an ‘advice gap’ that is widening as higher education standards and shrinking revenue culls providers.
He points to the US, where heavy-hitters like Fidelity, Goldman Sachs and JP Morgan have launched low cost, low touch digital advice solutions.
“There’s a reason why the big banks are now talking about digital platforms and robo-advice,” Garrett says. “It’s the only way you can service the mass market.”
The Six Park model isn’t for everyone. Clients do a risk assessment that leads to an ETF-based recommendation, then invest on a managed account platform. Interaction is online or over the phone. They’ll occasionally meet face-to-face, Garrett says, “but it’s not the norm”.
It’s cheap, with tiered fees start at 0.5 per cent up to $200,000. There are no managed account fees and brokerage is included.
Calling the service ‘financial advice’ is probably a misnomer, however; it’s moreso portfolio advice with investment enablement. Yet Garrett’s point is that there are just as many people looking for this – investment advice sans the underlying strategic coaching – as there are looking for the full suite of traditional advice. Not everyone wants the trimmings.
“There’s no doubt in my mind there’s a massive need for this,” Garrett says.
Scale up, scale down
For limited advice providers, the regulatory path is less defined than that of holistic advice.
Compliant advice is predicated on best interest duty, which is (theoretically at least) an achievable target for a holistic advice provider with a full view of the client’s financial life.
For a scaled advice provider, however, the scope is – by definition – limited.
ASIC’s line here is clear – best interests duty (BID) and related obligations apply to all, regardless of the scope of the advice. As stated in regulatory guide 244, “…there are not two sets of rules – one for ‘comprehensive’ advice, and one for ‘scaled’ advice.”
The message from ASIC is that advice shouldn’t be reduced to being either limited or comprehensive.
“All advice is scaled to some extent – advice is either less or more comprehensive in scope along a continuous spectrum,” states the guide, noting that advisers should adjust their obligations accordingly.
“You can give scaled advice that is limited in scope that meets your legal obligations,” the guide continues. “This is because what you must do to meet the legal requirements, including the best interests duty and related obligations, can be ‘scaled up’ or ‘scaled down’ depending on the nature of the advice.”
Adjusting “what you must do” is appropriate guidance, but not particularly prescriptive.
The net result, for scaled advice providers, is to rely on section 961(H) of the Corps Act, which directs representatives to warn the client if the advice is based on “incomplete or inaccurate information”.
In other words, disclosure.
‘Triage’ the client
For providers like Six Park, disclosure needs to be addressed before any notion of tackling the advice gap can be entertained.
Garrett says the firm uses a robust risk assessment fact-find, but the nature of the service precludes Six Park from knowing everything and the client needs to know this.
“It does carry risk if it’s not presented in the right way and the client isn’t triaged and provided with all the requisite disclosures,” he says.
Garrett notes the firm is “highly sensitised” to regulation and keeps tabs on comparable developments overseas. Moreover, they’ve engaged the services of law firm Holly Nethercote to help them navigate BID and disclosure issues.
“They gave us advice during the entire journey on constructing a service from a consumer and a regulatory perspective. Not just to disclose… but to really be able to point back and say we did everything we could, and then some, to make sure the consumer knew what they were getting into,” he explains.
The notion of disclosure as a catch-all has come under fire, however, with ASIC recently publishing a report entitled “Disclosure: Why it shouldn’t be the default”, which identified limitations with regards to its effectiveness and, in some cases, how it contributes to consumer harm.
