FPA chief Dante De Gori has expressed concern about the feasibility of the main proposal in a new report released by Rice Warner and the Financial Services Council (FSC), which suggests dividing personal advice into ‘simple’ and ‘complex’ sub-categories.
The proposal, aimed at reducing the cost of advice and increasing access for consumers, calls for usage of “online tools backed by call centres” for ‘simple’ advice in areas such as budgeting, mortgages, life insurance strategies, savings and superannuation contributions, with call centre teams led by a qualified financial adviser.
Complex personal advice that involves higher levels of risk such as retirement strategies, estate planning, investments, gearing and aged care would be carried out by a qualified adviser, the report states. Once these strategies are in place consumers could go back to being ‘simple’ advice clients.
In a session held at the FSC’s Advice Summit to discuss the proposal, De Gori said while he agrees with the concept of splitting advice definitions the proposal in its current form should be treated with caution.
“This issue of simple versus complex… in theory it makes a lot of sense but in practice its quite difficult and complex,” the FPA chief executive said.
Clients may present what appears to be a ‘simple’ advice need, De Gori explained, such as the need for help with superannuation contributions, but there may be more complex issues behind that. “Symptoms alone aren’t enough to identify a simple advice issue,” he said.
The proposal also called for a watering down of Best Interests Duty for ‘simple’ advice providers. If low-cost providers like call centre operators are providing advice under these circumstances, De Gori ventured, there is good reason to harbour concerns.
“No disrespect to a call centre operator, but we would caution against anyone who’s not qualified and trained to give that advice,” he said. “I think it’s important that if you’re going to give advice to mum and dad Australians that person should still be trained and qualified.”
There’s a disconnect
Consternation about the report and its applicability to the advice sector came just an hour after the assistant minister for superannuation, financial services and financial technology, Jane Hume, said the government was working closely with ASIC, industry bodies and advisers to “unravel the Gordian knot that financial advice has become”.
“We want to identify obstacles to productivity and profitability, and we want to reduce the burden on your industry and its participants,” Hume said in an earlier session.
While the senator praised the work of industry representative bodies and stakeholders in coming together to present a “unified voice” to Canberra, reaction to the FSC report highlighted how disparate opinions on the industry remain.
Sitting alongside De Gori in the afternoon’s panel, licensee Paragem’s CEO Nathan Jacobsen agreed with De Gori that while the Future of Advice report had conceptual merit, the proposal that unqualified providers take over large tracts of advice needed to be treated with caution.
Jacobsen, who sits on the FSC’s own Advice Board Committee, brought up the report’s assertion that over 60 per cent of consumers are “unwilling to pay anything” for advice and “only a very small percentage” are willing to pay more than $250.
“I’m going to push the boat out and say I don’t think advice will ever get delivered at that price point by an adviser under the current regime,” Jacobsen said.
A simple advice template could work and would help to bring costs down, he explained, but it doesn’t bring down enough operational costs to make “a few hundred dollars” viable as a remuneration level for advisers.
“Advisers don’t want to take on clients below $4,000 to $5,000,” Jacobsen said. “So there’s a disconnect.”
All due respect Tahn, but I think there might be a word missing from the second paragraph:
“The proposal, OSTENSIBLY aimed at reducing the cost of advice and increasing access for consumers…”
I don’t think I’m being too cynical when I say that the stated objective and the actual objective are quite different.
This proposal would simply make it easier for the members of the FSC to sell more product without the obligations financial advisers need to satisfy.
Christoph Schnelle is completely correct – there is financial advice, and there is what this proposal is discussing.
They are fundamentally different and, frankly, the FSC shouldn’t have any input into how to regulate financial advice at all.
Doctors don’t let Pfizer, GlaxoSmithKline or Bayer dictate how they practice – why do we let the FSC dictate how we work?
Interesting article, none the least as I learned about ‘Gordian knots’!
I agree that reverting to call centre for simple advice is a bridge too far however, where it may be able to work is where the call centre houses new ‘trainee’ advisers. Perhaps those undergoing the professional year and those newly qualified. To work best, the ‘call centre’ would be attached to an AFSL that offers comprehensive advice so that ‘triage’ could be done effectively.
The concept of ‘robo-advice’ is getting well debated however, it is almost in the category of call centre advice (no disrespect to any machine or their human programmers), so why, if that model can seemingly work, a human enabled simple advice model be developed? I hope the concept gets some debate going.
Has the main point been missed by the FSC: “60 per cent of consumers are “unwilling to pay anything” for advice and “only a very small percentage” are willing to pay more than $250.”
The key word is “unwilling”. Why would anyone be willing to pay anything if they don’t see value in it. The solution is to do more to articulate the value in advice that goes well beyond investment management. And one step down this path is to increase the level of professionalism in the industry, let alone the perception of professionalism.
And part of this involves dismantling the highly conflicted vertically integrated model.
PS Nathan Jacobson’s comment that advisers don’t want to take clients below $4,000 to $5,000 needs to be seen in the current context with its achingly complex compliance requirements and the way those requirements are being enforced. In a sensible compliance environment as it is in law and accountancy (less so in medicine), that number could be less than half the size, putting advice within reach of the majority of the population.
I don’t like this FSC / Rice Warner proposal at all. Imagine such a proposal would be made about the legal profession, it would be ridiculed and lead to a storm of outrage. Either law / financial advice is given by suitably qualified professionals or it is not legal / financial advice and the word ‘advice’ should not appear in what is being provided as it is deliberately misleading.
Yes, there is a need for simple advice but the legal profession has this well in hand – it is not expensive to do a simple will but if it turns out you have complex estate planning needs, the lawyer will advise that that is the case because they are qualified to evaluate whether there is such a need,
A call centre, i.e. a person whose training is measured in days, not years, would be much less likely to identify a complex need, if only because they often work from scripts and therefore do not even receive the information from the client that shows the need is more complex and they definitely don’t have the background to make such an evaluation in many such cases.
Financial advice needs a thorough understanding of the relevant law, of what is available in the market place to fulfil the need of the client and, at least as much and perhaps even more than in other professions, a thorough understanding of human nature that can take decades to develop.
Anything that is given by lightly trained people should NOT be called advice. If we would start anew, I cannot imagine anybody even considering that a few days of training would qualify anyone to provide something that can be labelled financial advice. It is only for historical reasons, i.e. the dominance of the product providers employing financial advisers, that that is even considered.