To improve innovation the industry needs looser regulatory settings in all areas bar one – the barrier to entry – according to AZ NGA chief Paul Barrett.
Speaking at the Professional Planner Licensee Summit earlier this week, Barrett said for the industry to attract more capital to innovate, barriers to entry must remain high while other regulatory settings are eased.
“Accountants, lawyers and doctors have to climb a mountain to become a practicing member of their firm. On the other side of that mountain they have a good life. In financial planning we have to jump over a speed hump and then we have a hard life.”
Barrett said adding barriers at the early stages of a career in advice will put the vocation in line with other professions.
“Young people that want to have a career right now that have ambition and want to do something special with their lives are not picking financial planning. If you want more people in then put the barriers up. Unusual, but true.”
Adapt and survive
The industry wasn’t broken and had innovated in many areas, Barrett said, with the exception being regulation.
“We just keep beating ourselves up. The conversation [during day one of the conference] blew my mind – if you were a Martian and you came into the room yesterday and listened to the conversation you would walk away thinking the industry is broken. We’ve done some wonderful things, but you wouldn’t know that from walking away yesterday.”
BT Financial Group head of platforms distribution Chris Mather said innovation has traditionally been viewed as a revolution but now the perception is on the ability to adapt.
“Adaptability is going to be the way to innovate. That’s going to be about not what you are doing, but what you stopped doing. So really focusing on target client cohort and adaptability through systems that exist.”
He pointed to managed accounts as an example of an innovation that isn’t a new technology but a solution that can be used to by businesses to adapt in a changing environment.
“80 per cent of advisers say they’ll adopted managed accounts, yet only 30 per cent have adopted it across their business,” he said. “How can we create the capacity to adopt?”
Similarly, Iress commercial director for investment infrastructure Geoff Rogers said the fintech firm sees innovation as the focus on simplification to allow their clients to achieve scale.
“It’s that simple, but it’s hard to do. I’m looking at it in the context of the world I was in 18 months ago where the businesses I was close to [at MLC Advice] were caught with 110 clients per adviser and growing at 10 clients per year. That is an unsustainable model and has to change. To make things simpler and to do that to allow scale to come is important.”
Missed opportunity
Barrett said a move to dissolve vertically integrated models would be a mistake, and the two-stream approach that would have seen it co-exist alongside holistic, independent advice would have delivered more services to a broader consumer base.
“That was dumb. Vertical integration has some real benefits. One of the things we’ve lost is this affordable, accessible advice on every street corner dispensed through a bank to consumers who wanted to go to a bank they trusted. We’ve lost that.”
Barrett said the mistake made by the banks was not changing their reporting lines earlier so that advice businesses could report directly to the CEO and not the product division.
“The banks would’ve done a pretty decent job and we’d probably have quite a flourishing vertically-integrated sector and we’d have a more professional sector that was going gangbusters as well.”
I also meant to add that the real story here is the irony that many other professionals are able to give affordable advice to a larger number of Australians due to the fact that their regulatory requirements are less – eg visiting a GP. I am putting forward that one of the reasons for this is that they are trusted by consumers and policy makers because they had such a high standard to meet to become a professional in their field. I think it’s an idea we all need to reflect on because the net result is more affordable advice to more Australians in the long run.
By making high barriers to even enter the Financial Planning world as a risk Adviser, is creating a specialist mentality similar to the medical profession, except the work horses and most crucial element to Australians health, General Practitioners, will not want to be just a GP, as after what would be around 8 years of training to be a newly qualified medical specialist, they will need to charge fees higher than what the vast majority of Australians can afford for their new found professional skills.
There are always going to be high income earners who can afford to pay for services, HOWEVER they are the minority.
If all the current GP’s were now being forced to cease as General Practitioners and no longer treat patients until they do years more study, due to the bar having been raised to “Specialist” status, then Australia’s health system becomes a basket case.
This is what has happened to the Advised Life Insurance sector, where the barriers to entry AND to stay in the Industry, are driving existing and potentially new Advisers away.
The result has been a disaster for all Australians and Australia, because of a Utopian vision that has little to do with the REAL world that the vast majority of Australians live in.
Look at North America’s health system to see the end result of “Elitist” agendas’ where the USA has one of the least affordable health systems in the world and the motto there is, ” for gods sake, do not get sick.”
Paul has an elitist vision that is great for the vastly experienced specialist Investment and Retirement Financial Planners who will only work with high net worth clients, which is fine for them, though that leaves the vast majority of the population in limbo.
Paul, your views are too narrow in scope to make your higher barrier to entry thesis have merit.
The Advised Life Insurance Industry is in big trouble and ALL Australians are paying the price for short sighted, utopian visions with ZERO COMMON SENSE.
Hi Jeremy, you make some great points here but you didn’t read the whole article or hear the whole session at the summit. I made the point very strongly that successful professional services companies were serving a number of segments including helping young people get their first homes, for instance. There seems to be an assumption in the industry that all young people want investment and insurance solutions. They don’t and there are many professional firms serving this market albeit not via an AFSL regime. The AFSL regime has us all trapped between narrow flags that provide a limited value proposition.I am advocating a change in risk appetite and entreprenuership as an antidote to the very problem you describe above. Describing my vision as elitist is very short sighted. I think it is up to business owners not regulators to work out what market they want to serve, build or buy the capability they need and then consider the relevant licenses last. Problem for the industry is that we’ve put the licensing decision at the front of that assessment.
I’m also advocating a regime where separate rules can exist that enable risk advisers and planners to provide more affordable advice to more Australians with a far simpler regulatory burden. I can assure you the issues you face into every day the same issues some of our firms face into and we are very active in trying to work with policy makers to make it better.
All that said, like it or not, we have an image problem, and that will be solved over the long run by being regarded as professionals.
Hi Jeremy. What is elitist about wanting to be viewed as a profession, regardless of GP v Specialist? To be professional we first must act professionally. One reason increasing barriers to entry are necessary is because in the past our industry was portrayed as a joke, only needing to pass some basic courses to become authorised. As the barriers to entry have increased over time and FASEA introduced, the hope is the legislative noose around our necks will decrease. A true profession is self-regulating. When we are seen in this light by the community (which requires increasing barriers to entry) the need for formal regulations should reduce, bringing the cost of advice down. Regulatory oversight is inversely proportional to professional status.
Australia is the ONLY country in the world with annual fee renewals. Until this is removed, you can forget earning a professional income