AMP's Matt Lawler

While the value of financial advice is becoming recognised by consumers, the real developmental issue for the industry is the need for a regulatory system that not only accommodates but encourages episodic advice according to AMP’s Matt Lawler.

With the adoption of Letters of Advice (LoA), Lawler believes, in place of costly Statements of Advice (SoA), episodic advice would become more than just a niche corner of the advice proposition; it would become the foundation of a whole-of-life advice relationship that begins with engagement, gestates with episodic advice and flourishes into holistic advice when the clients’ needs can sustain it.

Speaking on the first of three Professional Planner roundtables focused on exploring the industry’s exposition of the value of advice, Lawler said consumers often don’t want an “all or nothing proposition” and would prefer to build trust with an adviser over time.

“Episodic advice allows advisers to establish trust with their clients,” he said. “After being given bits of advice at crucial times in their lives, the ground is laid for a more holistic advice service when the client has accumulated larger amounts of money. They will be more inclined to entrust an adviser having established the relationship.”

While holistic advice works for some consumers at the point where they meet an adviser for the first time, including high-net-worth individuals and those with complex needs, the predilection many have for receiving episodic advice – at least until the pre-retirement phase – can’t be ignored.

Despite the importance of episodic advice to consumers and as a gateway to holistic advice, however, Lawler says the current regulatory framework isn’t suitably scaled to support episodic advice delivery.

“We need to make episodic advice more accessible to people, and this concept of a Letter of Advice as opposed to a full SoA allows you to actually give that episodic advice without big costs or inputs attached to it from the advice practices point of view,” he explained. “And then we nurture these clients into a point where they are prepared to build that deeper relationship.”

Also on the roundtable, Elixir Consulting founder Sue Viskovic agreed that a “much larger cohort of clients are receiving episodic advice” in 2022.

“A lot of the firms that we’re working with are looking at their client base and figuring out how much they need to charge to be profitable, and there’s always a tail-end of clients for whom it’s not going to be value-adding to pay the minimum fee and they don’t actually need an ongoing service,” she said.

“So a lot of firms are turning to those clients and saying ‘we’re here when you need us, but we don’t believe that you actually need us on an annual basis’.”

Letters over statements

The concept of an LoA was popularised by the Financial Services Council in its Whitepaper on Financial Advice, which proposed abolishing Records of Advice and supplanting SoAs with a shorter, simpler document that provides “only the information the consumer needs to decide whether to implement the advice”.

Using LoAs to spur an increase in the use of episodic advice and meet the demands of consumers – especially those under the pre-retirement age threshold – is a development some advisers might object to, Lawler acknowledges. The required changes to business models wouldn’t suit all practices, with many rusted onto the ongoing fee model.