In Michelle Levy’s future of advice, there are two categories of financial adviser: a professional financial adviser that is licensed and qualified to provide holistic strategic advice and a new class of customer service agent that can also provide limited personal advice.
The upper class – referred to as relevant providers – must meet current professional, ethical and education standards, and be paid a fee for service.
The lower class would primarily be employees of product issuers or non-relevant providers.
Under proposals in the Quality of Advice Review consultation paper, they would only need to undertake reasonable training, most likely internal.
Their advice would be covered or subsidised by product. They could potentially charge a fee, making differentiation more challenging.
The idea of letting hundreds of inexperienced customer service agents loose on members is frightening but the ironically named Quality of Advice Review is focused on disseminating personal advice to the masses.
It should arguably be renamed the Quantity of Advice Review.
Fortune still favours the bold
Still, Levy’s bold thinking should be commended.
Demand for affordable personal advice exceeds supply and radical changes are needed to solve the industry’s long list of problems.
A shift to more principles-based regulation would make it easier for advisers and product issuers to provide personal advice.
A two-tiered adviser model would create an opening for students, graduates and others seeking a career change to enter the industry.
This would boost adviser numbers and create a nursery for future professionals.
Both changes have the potential to significantly improve advice affordability and accessibility, but there are also significant risks to consider.
There’s a risk that untrained customer service agents will revert to product flogging and tarnish the industry’s reputation again, undoing years of progress.
There’s a risk that consumers won’t fully understand the difference between relevant and non-relevant providers, and will settle for incomplete and, therefore, sub-optimum advice.
There’s a risk that the “free” or cheap advice provided by customers service agents will make relevant providers appear expensive, despite the enormous value they can add.
Foreseeing the potential for danger, the government must ensure strong consumer protections are in place, starting by requiring customer service agents to hold basic minimum education and training standards like a Diploma in Financial Planning. The financial wellbeing of 26 million Australians is too important to be left in the hands of product issuers with no experience in giving personal advice.
If the advice review proposals become legislation, non-relevant providers will need a lot of practical guidance on how to give “good advice”.
Levy describes good advice as advice that is “reasonably likely to benefit the client, having regard to the information that is available to the provider at the time”.
However, that highly subjective benchmark is difficult for consumers to measure, given the positive and negative impact of advice may only be evident until years later.
When simple is simple
Operational standards (not compliance standards) are important.
For example, it is globally accepted that good advice is advice that considers a person’s unique circumstances, needs and objectives. Therefore, customer service agents should get customers to complete a comprehensive fact find and needs analysis.
There should also be a practical framework for determining the parameters of non-relevant providers, based on materiality.
Materiality must be seriously considered before a blanket rule is applied to the removal of statements of advice.
There is no question that it is currently too hard to give simple advice, such as a recommendation to move from Product A to Product B. If Product A is a diversified fund and Product B is a slightly cheaper diversified fund, and that allocation represents a small percentage of a client’s portfolio (let’s say 5 per cent) that advice is largely immaterial.
Customer service agents should be able to give this type of advice.
On the other hand, strategic retirement advice is material. It can significantly impact a person’s lifestyle in retirement, and should only be provided by a qualified financial adviser.
Historically, the industry has made the mistake of linking materiality to a person’s wealth and income but an individual’s financial position is no indication of their sophistication. It should not impact their rights and protections, nor should it give a customer service representative the green light to discuss all manner of things.
Boosting numbers
If the industry hopes to attract talent, replenish adviser numbers this decade and grow in the future, it needs creative solutions for reaching not only graduates, but 30 and 40 year olds with life experience looking for a career change.
Treasury’s proposed experienced adviser pathway is sensible but it will only save a small number of advisers from an early retirement.
Despite the risks, a two tier system is the industry’s best bet for recruiting hundreds, if not thousands, of new entrants. These are the numbers needed to meet latent demand for personal advice.
The future of advice will belong to this potential new class of adviser. As customer service reps seek to advance their career and give consumers better advice, they will invest in their education. This, in turn, will drive demand for approved degrees and see more universities providers offer financial planning.
Advice quality and quantity will inevitably rise.
Paul Moran is principal of Moran Partners Financial Planning and chief executive of iFactFind.
Thanks for the contribution Paul. Some important points well-made.
Essentially Michelle is providing Industry Funds with an exemption to provide advice without having to follow all the rules Financial Planners are now required to adhere to. She is advocating the reintroduction of vertical integrated models and product sellers. The Industry Funds would spend hundreds of millions on advertising free advice. Their advisers would have no qualification but be able to provide advice on almost everything a qualified adviser could. Furthermore, they would not have to provide anything much in the way of documentation. They would compete with qualified financial planners for business, undercutting them every time. This is what the Labor Party, Unions and Industry Funds want – wipe out Financial Planning completely. The sad part is the Liberals will sell us out as they have in the past. Don’t believe a word of what is being said about making advice affordable or available to everyone. That’s all just smoke and mirrors.
Paul has made some very valid points. I personally believe that any advice should be provided by those licensed to provide financial advice. FinTechs like Paul’s iFactFact, and my Financial Mappers are designed to make the financial advice process simpler, clearer, and more transparent. To remain relevant to all consumers, there are ways for financial advisers to provide affordable advice to all. They can match the level of detail provided based on the needs and ability to pay for advice. This can all be done, with advisers making a profitable return on their time and expertise. Financial advisers should not let this so-called “Lower Class” of advisers hijack the financial services industry.