Financial services minister Stephen Jones told a packed ballroom at Sydney’s Four Seasons hotel in early December that he would be surprised if the big four banks were actively drawing up plans to re-enter the financial advice space.
Perhaps the minister should prepare himself for a surprise. If you ask around within the industry the issue is not whether the banks will get back in, it’s when and how. The answer is that it depends on which of the recommendations of the Quality of Advice Review the government accepts, and how long it takes to pass the legislation required to implement those recommendations.
If the recommendations the government accepts re-open the door to the banks (and other institutions – keep an eye on the platform and life insurance sectors, for example), they’re not only then going to start drawing up plans from scratch. They already have a clear-eyed idea of how they want to get back into it. There may not be a stampede on day one, but that doesn’t mean they’re not already working on how they will do it and what it will look like.
Jones is due to receive the final report of the advice review today and can look forward to a Christmas and New Year period digesting its recommendations and formulating a response. He told the first of the BT-sponsored Conexus Financial Political Series events last week that whatever the government decides about the review’s recommendations that he’ll produce a full response, outlining why the government accepts or rejects its proposals. So at least this isn’t a report that will languish on the shelf.
Jones acknowledged the inherent conflicts that exist in product manufacturers also providing advice on those products. But he also noted the number of financial advisers needs to be rebuilt as part of a push to make financial advice more accessible and affordable for more Australians. However, it doesn’t automatically follow that access and affordability can only be addressed by allowing more conflicts back into the system.
It’s doubtful the banks will help much with rebuilding the number of advisers anyway. They’re more likely to develop technology-based solutions than to establish licensee businesses and recruit and train thousands of individual advisers again, what with the time, expense and risk that comes with it. Been there, done that, got burned.
What is advice anyway?
There are a couple of ways to think of financial advice. One way is to think of it as a profession. A profession exists as a community of practitioners; as a body of professional knowledge, experience and standards of practice; in practitioners’ professional judgement and adherence to a code of ethics; and in acting in the public interest.
The other way to think of advice is as product distribution. Product distributions exists as a profit driver for manufacturers. We are, or we should be, well past the stage where we’ll accept financial advice as distribution.
If it’s true that financial advice is a profession, then it will remain, at its core, a person-to-person service. Like other professions, technology will support and enable the provision of services and may even take over some of the activities previously conducted by people.
But technology shouldn’t be permitted as a way of shortcutting or circumventing professional and ethical standards, nor should it reduce consumer protections.
Allowing banks back into advice isn’t the only way to increase the affordability and accessibility of advice. You can also do it by reducing the regulatory burden on advisers and advice businesses to allow more efficient delivery of services to consumers, and more sustainable advice businesses.
When you have a profession operating in a sustainable and vibrant business environment, it will start to invest much more in its own development, and that includes recruiting more individuals to its ranks, and putting them through the professional year. It develops momentum and a culture, and it becomes a more attractive and viable career choice for school leavers.
We await the review recommendations with interest. The issue is going to be whether its recommendations can be implemented and maintain the integrity of an emerging profession and preserve consumer protection, while simultaneously improving affordability and accessibility.
Happy New Year, Minister – and good luck.
