Participants on a thought leadership panel to open the 2020 SMSF Association technical day have questioned the financial advice industry’s response to the Hayne royal commission and suggested that the current regulatory hiatus may be a good time to stop and reassess whether the industry is being rebuilt with the right foundations.
According to Jeremy Cooper, chairman of retirement income at Challenger, changes are being bolted on without due consideration for the industry’s inherent structure.
“Half of the things that Hayne recommended haven’t even arrived yet,” said Cooper, who spent five years as deputy chair at ASIC and chaired the 2009 super system review. “You’ve [still] got things like individual licensing, a new disciplinary body, a full-blown opt-in regime, fiddling around with fees… on a system where you might ask, well hang on, are the foundations actually sound?”
It’s not just about blaming regulators and policymakers, Cooper said. The industry itself has “potentially over-reacted” to the dust-storm of the royal commission, he reckons, by making compliance documents more bloated.
“I didn’t hear Hayne say we need to keep longer SoAs and more detailed compliance, I heard Hayne say ‘don’t rip your customers off and don’t charge them for services you didn’t give them’,” he said.
Jane Hume, the assistant minister for financial services, superannuation and fintech, recently called 80-page SoAs “crazy”, and while ASIC have joined the chorus in telling advisers to trim compliance documents, advisers are reluctant to shorten them with the royal commission and the regulator’s ongoing ‘lookback’ programs front of mind.
Also on the panel, CEO of researcher Investment Trends Michael Blomfield pointed to the dismantling of vertical integration – largely by the institutional advice sector – as another example of a possibly wayward reaction to the royal commission.
“My reading of almost the entire finding of Hayne was – ‘would you follow the law please?’” Blomfield said. “He didn’t say anywhere that vertical integration is evil and must be torn down. But the industry just decided it was going to happen and we tore it down.”
The advice industry is “confused”, Blomfield said, and that uncertainty is cutting into the confidence of advisers.
“The vast majority of advice that’s been given is good advice,” he said. “We had a royal commission into misconduct that ‘miraculously’ found misconduct, and we shouldn’t let that destroy the confidence of those people who weren’t behaving poorly.”
The non-ubiquity of advice
The observations made by the panel weren’t presented as criticisms, but rather as examples to demonstrate that whilst the government’s reform implementation has been stalled due to the pandemic, it may be a good time to reassess whether the collective reaction is taking us down the right path.
“We might need to go back to square one and ask ourselves what we’re trying to do here,” Cooper said, while acknowledging that the financial industry has other significant concerns right now. “But I do think it may be time to pause and maybe have a reset,” he said.
The conditions for reassessing the industry’s path are “ripe”, Blomfield ventured, but only if there is the requisite appetite. That desire may not be a given when advisers are coping with numerous other headwinds, he noted, but it doesn’t detract from the importance of getting it right.
The government’s recent early release of super policy was “the default answer to the non-ubiquity of financial advice”, he said, and the advice industry will be called upon to fix the damage.
“Of course, there’s the supply problem there as well, because if everybody suddenly has access to advice we won’t have the advice to give,” he said, alluding to the 20 per cent of advisers that have left the industry in the last 18 months. “We’ve got to start by at least increasing its availability.”
BT’s general manager of superannuation, Melinda Howes – who chaired the session – agreed.
“Its clear the system needs to change dramatically to support consumer needs,” she said.
The advice environment may be “uniquely challenging”, Blomfield added, and there are countless issues to address. But now may be the time to do it.
“Is this not the moment to really think hard about that blank sheet of paper?” he said.
I’m sick of upper-management industry boffins, who have never set foot in an adviser’s office or would know what a regular mum and dad client looks or smells like, commenating on how to fix the advice industry. Advisers are the last people to be included in these expert panels, boards and focus groups. What would we know? I wanted to stick my fingers down my throat when Jeremy Cooper mentioned the increased size of SOAs – as if somehow advisers responded to the RC and decided to add more pages and dealer group templated paragraphs because of the fun of it.
Unfortunately the industry is run by people who probably mean well but don’t have anything more than a curosry understanding of the patchwork layering of ham-fisted rules and red tape that when frankensteined all together somehow = acting in the client’s best interest (at a much greater cost than before).
I’m not sure what ‘regulatory hiatus’ these peanuts are referring to. ASIC are having wet dreams about shutting down as many advisers as possible with the threat of ‘fee for no service’ if an advice doc is not provided by 31 Dec. Read that as “It’s better to get a sh***y advice doc to your clients before Xmas than no doc”.
You can’t make this stuff up.
I also heard Hayne say ‘don’t rip your customers off and don’t charge them for services you didn’t give them’,” he said. On that basis, given that millions of fund members are being charged ongoing fees for advice most of those members never receive, have not given informed consent to be charged, nor can they Opt Out of; the “intrafund advice” marketing regime being used by the institutions should be shut down immediately. Alternatively, get rid of Opt Ins. You cannot have both.
“we shouldn’t let that destroy the confidence of those people who weren’t behaving poorly.” Too late! Advisers are unfortunately a convenient scapegoat for the regulators, licensees and product providers. We are the ones at the bottom of the pile being held accountable for the many failings in the industry that had almost nothing to do with advisers and the quality outcomes we were providing to our many clients. Now we are so bogged down in licensee requirements which are “about keeping everyone safe” i.e. the licensee, we are not left with enough time to actually speak to and assist our clients. There is so much rhetoric about clients first however the reality is quite different. I hang in because I really do care about my clients (as do most advisers) however it is getting harder every day.
There have always been a plethora of “experts” who have been instrumental in bringing the Advice Industry to the current maze of complexity.
Advisers were and to this day, still are being used as scapegoats for the sins of the Industry.
The fact that over 23% of advisers have exited the industry in the last 18 months, with many more to exit, should be a cause of reflection.
As a matter of fact, there are tens of thousands of highly paid people who will be paid vast amounts of Tax Payers and Shareholders money, to reflect and consider.
Nero playing the fiddle while Rome burned, has a familiar ring.
We as an Industry, need to stop reflecting and star gazing and cut through the maze to get some common sense regulations.
I am sorry, but the way we are approaching it, is not going to work until the Legal Industry and complex Laws that are open to interpretation, are removed.
Lawyers discussing Regulation and their differing interpretation of it, is akin to George Washington who upon defeating the British in the war of Independence and becoming the President of the United States, caught a cold and sought the best experts in the Country to fix what would have been a simple cure. ( REST )
Instead, the expert and eminent doctors used their sophisticated knowledge and killed him, by bleeding him and inserting mercury into his blood stream to draw out the poison.
When the cure is worse than the ailment and we continue to ask those same people to fix issues using the same techniques, it is not too much to realise, that the advice is bad.
The current regime is following the same path to fix the issues facing Advisers, who always seem to be an afterthought in the rush to appease all and sundry, with little thought of the real issues and the simple solutions.
While I agree with the sentiment, the panellist probably need to understand that a large swathe of advisers are still being pursued by former licensees for remediation on advice that was provided and documented under the policies enforced by those same licensees, but which is now subject to a ‘guilty until proven innocent’ regime.
How can advisers possibly move on to a regime of lighter disclosure when they remain at risk of lookbacks covering documentation over a decade old (despite RG 175.427)?
The CEO of AFCA recently indicated of all the complaints they deal with, 1.6% relate to advice. Does this not suggest that the problem was always about product providers (and their associated ‘distribution’ arms)? I, for one, am less enamoured by the postulations of product providers in assessing what is best for a cohort of advisers they have helped to screw.
It’s positive that this discussion is happening but we need something to come out of it. Could we have a follow up conversation with second round of panelists? I would do an open forum with a selection of key licensee heads and compliance managers (heads of legal, risk, compliance and professional standards) with the task of answering this one question (kind of) – how do we bring down the size and complexity of advice documents, make the advice process more efficient, reduce cost, make advice less costly and more accessible to ordinary Australians, and not create more risk for advisers and licensees. My selection for the panel would be Sen The Hon Jane Hume, Danielle Press (ASIC), David Locke (AFCA), Kenneth Hayne (Royal Comm.), Stephen Glenfield (FASEA), Phil Kewin (AFA), Dante De Gori (FPA). There are many others adding to conversation but effectively, getting the people together that hold the future of our industry in their hands has to be a good starting point. I don’t think it can be done without amending the Corporations Act and related provisions and assessing in a practical advice delivery sense, the juxtaposition of the FASEA requirements.