Is advice that is good-enough, good enough?

November 24, 2022

The adjectives good and limited in the context of personal advice don’t add up.

For example, it’s impossible to accurately assess a person’s retirement income needs without a complete picture of their financial situation including any debt they need to repay.

Outside of financial services, good and limited don’t go together either.

Nothing done by halves or half-hearted is good. Just ask your spouse, manager or personal trainer.

It may be good enough but is that the same thing?

Similarly, the expression half-baked is used to describe an idea or plan that is not fully thought through and lacking a sound basis. It is a metaphor based on undercooked cakes or bread, which are then uneatable and useless.

Personal financial advice is more important than cake (arguably), yet Treasury is hoping that product issuers will be able to provide good, limited advice.

In professional advice land, the foundation of good personal advice is a solid understanding of a person’s circumstances, needs and goals in order to determine the scope and complexity of advice they require.

Practically, that means asking a lot of questions and gathering client data.

When scoping a client’s advice needs, advisers typically start by asking them what they want to talk about. As part of the process, clients complete a comprehensive fact find questionnaire.

From this information, an adviser can conduct a financial needs analysis and identify a client’s total advice requirements.

When an adviser and client revisit the scope of advice, it is almost always much broader than what a client originally thought they needed.

People don’t know what they don’t know, which is why professional advice is so valuable.

Only then is an adviser in a position to form professional opinions, develop strategies and give good advice.

Trying to give personal advice of any kind without a comprehensive fact find and needs analysis could be likened to a doctor accepting a patient’s self-diagnosis.

People usually visit a doctor because they know they’re sick. They may have self-diagnosed the flu, based on symptoms like a sore throat, blocked nose and headaches.

They go to a doctor for advice on treatment.

If a doctor accepts a person’s self-diagnosis and prescribes medicine to treat their symptoms but fails to investigate further and misses a more serious underlying condition, is that still good advice?

Is limited personal advice akin to treating a rash but missing a tumour?

According to Treasury, personal advice doesn’t need to be holistic to be good. It can be provided piece-by-piece.

If that’s the case, then at the very least customers must be informed of their total advice needs and the limitations of the advice they’re actually getting. They should understand the potential consequences of only getting limited advice in order to make an informed decision on whether they need a more complete solution.

Present experience tells us that, unless mandated, this is unlikely to happen.

Amidst all the debate about advice accessibility and affordability, it has been lost that there is legally nothing stopping product issuers and superannuation funds from providing good personal advice right now.

If they wanted to better serve their members and customers, they could gain the necessary licences and employ qualified advisers.

Many choose not to because of the repercussions, namely objective advice. This could potentially lead to account consolidation, outflows and loss of fee revenue.

It has not been in the interests of product issuers to provide personal advice. There’s nothing in it for them, only their members.

While Treasury’s efforts to make personal financial advice more accessible and affordable by simplifying the advice process are important and appreciated, this reality should be remembered.

Therefore, Treasury should recommend that all personal advice providers conduct a comprehensive fact find and needs analysis.

Furthermore, the proposed definition of good advice (advice that is reasonably likely to benefit the client, having regard to the information that is available to the provider at the time) is too subjective and should be tightened.

To provide certainty, operational standards should also be available to help personal advice providers meet the good advice obligation such as a list of recognised fact finds and risk tolerance questionnaires, and broadly accepted methodology for addressing common scenarios such as calculating person’s retirement income needs or level of life insurance cover.

This would benefit product issuers, many of whom would be giving personal advice for the first time. Importantly, it will help protect consumers too.

client needs, general advice, Limited advice, personal advice, product advice

6 responses to “Is advice that is good-enough, good enough?”

Glenis Phillips

November 28, 2022

Well-thought-out arguments by Paul. Fintech’s spend a lot of time, research and money to provide the Financial Services Industry with digital tools that allow financial advisers to provide financial advice, at the level of complexity required by the client. Why aren’t Financial Advisers using the tools created for them to use.

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Phillip Oxenbridge

November 26, 2022

Thank you for your candid response, Paul. I appreciate a good hearty discussion. I don’t think my writing ignores the fact you referred to in relation to the Doctor following the inquiry to the solution. It is exactly what a responsible financial planning professional does when giving any advice, including limited!

Tell me if I’m wrong but I think maybe your article is referring to product providers flogging a product under the guise of “limited advice”?? if so, you are correct, but it looks in parts like you are referring to the term “limited advice” in general terms

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Dr. Paul Moran CFP® SSA™

November 26, 2022

O.K. Phillip – it happens that I’m a 25-year veteran in financial services and have studied this area extensively. When ‘advice’ is offered by simply asking the client ‘what do you want?’ – especially when that ‘advice’ is delivered by a product provider whose only possible solution relates to the product – what do you expect the outcome will be? I’m not suggesting for a minute that full advice is required but rather that limited advice should be offered once the big picture is identified. Clients patently cannot understand their needs until they are made aware of them.
Your example of foot pain ignores the fact that the doctor will ask enough questions to exclude other more sinister diagnoses and, as a result of the questions, may need a CT scan etc.

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Phillip Oxenbridge

November 25, 2022

These are articles written by those who do not understand financial services. Why do periodicals like “Professional planner” publish these things.

Limited advice does not infer, “limited” understanding of the clients circumstances. It simply means the advice is limited, by the clients explicit request, to “good” “excellent, whatever”, advice, so produced to answer a specific area of enquiry! If you go to the doctor and ask about your pain in the foot, unless there is some link discovered, the doctor would not order brain scans, MRI of the circulatory system, etc. The medical professional would follow the trail of enquiry until a solution is found. There is no need to continue going if the diagnosis is successful and specific treatment administered. How is that any different to following the trail of enquiry and offering a solution to the expressed problem that answers those questions and anything directly related!

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Jeremy Wright

November 25, 2022

In an ideal world, every person would gladly accept that they need to provide extensive information and be happy to pay thousands of dollars to be provided with advice and a professional document that clearly explains and articulates all the complexity and needs in and around their lives, that even they are unaware exists.

However, the real world is one of complexity, confusion, threats and greed that time poor and cash poor people live under 24/7.

This is a barrier to our Industry, as it is hard to convince someone upfront, to agree to pay thousands of dollars on something they do not understand, or know they need yet.

Trust is also a big issue and the experience required to bring about and convince a person to become a FULLY PAID and ADVISED client, can never be underestimated, though always is.

Australians and most people around the world are conditioned to doing things in increments, so the concept of a limited service initially, to get the person on the books as a client, has merit.

To satisfy a Best Interest Duty, there needs to be clearly articulated steps that a person can quickly go through that shows the advantages of FULL ADVICE with the inherent time and costs that will need to spent doing this work.

Upon the person, getting back up, after falling off their chair with this revelation, then rather than showing, or being shown the door, it makes sense that another service could be provided as another alternative, that is cheaper initially and limited in it’s ability to provide appropriate benefits, though it at least gets the person to start the journey.

The journey of a thousand miles, must start with a first step.

The current tour guide, scares everyone, including themselves into starting the journey, which is a problem and is the issue our Industry has been facing for years now.

The basic fundamentals of living in a democratic society, is to allow freedom of choice.

So long as the choice to go with limited advice carries appropriate warnings and impacts of not getting the full suite of services now, then that is something we, as an Industry need to improve our communication and service capabilities, so clients understand and can make an informed decision on.

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Chris McGlinn

November 25, 2022

If we are now a profession then the onus is on us, as advice providers, to ensure we ask enough questions, and get enough specific and personal information to be able to advise the client.
This is the same as a doctor or lawyer. If you go to a doctor because you have a cold they should ask the questions needed to determine what you have and whether for instance you need any medication or if in fact it is something more serious; they dont generally need to order a PET scan or refer to a specialist but could if they determine that it is needed.
We need to make sure that we dont simply apply whatever logic got us into the current mess we are in to trying to “improve it”. Sometimes “good enough” will be OK because it meets the clients needs or because that is what they can afford to pay for, but we need to use professional judgement and experience to determine what is needed.
This is the difficulty with allowing people without the professional training and experience to give advice. Ditto groups that have inherent conflicts around selling a particular product or service.

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