The fundamental premise of financial advice has never been methodically tested, but if strategic investment advice goes under the regulatory microscope advisers will need to provide evidence of three critical elements.

To date, the focus of regulatory and consumer action has been on the quality and appropriateness of advice rather than value for service.

As I discussed in my previous article, Strategic advice in line to be next regulatory target, imminent harsher market conditions mean it’s more likely advisers will be put under the microscope about the veracity of their investment approach.

With the comfortable retirement of millions of Australians at stake, this won’t be a routine exercise.

Advisers may be called on by the Australian Securities and Investments Commission to produce hard evidence of their ability to provide high quality investment services to retail clients.

This will likely include appropriate qualifications and experience, documented processes, efficient systems, and formal risk management and governance controls.

A practice may not have proof of such things readily available.

The most effective way to satisfy these critical responsibilities is to formally engage the required expertise: be that an internal resource, external asset consultant or support from an experienced licensee.

What will regulators expect to see?

If and when the appointed time comes, there are three must-haves for advice businesses.

  1. Customised advice and solutions

The biggest problem with Storm Financial was that every client got the same solution. They all got the investment equivalent of Panadol, regardless of their needs, circumstances and objectives not to mention point-in-time asset valuations and market conditions.

Similarly, the main criticism of the vertically-integrated model is that it revolves around product rather than the customer. Both these roads lead to an in-house product sales construct (whether by design or inadvertently).

Despite it being more than a decade on, the memory of Storm Financial is still fresh in the regulator’s mind so it will be compelled to look for evidence of thoughtful, bespoke advice in each and every client situation.

They want to see advisers acting as fiduciaries because that leaves no room for predetermined outcomes.