Over the last two decades I’ve been deeply involved in designing and delivering financial education programs to tens of thousands of ordinary Australians. Throughout that time, the major recurring topic and feedback from participants of all ages and career stages has been the difficulty they experience in finding affordable and trusted financial advice.
Note the two criteria are “affordable” and “trusted”. Clearly, there’s no point in sourcing reasonably priced advice where you can’t trust the adviser to act in your best interests.
I’m pleased to say that a solution is at hand. There are two limbs to it and they should be adopted concurrently.
Quality of Advice Review
The first limb is the Quality of Advice Review which is currently under consultation by the Government. The recommendations of the review offer practical and sensible opportunities to reduce the cost of advice and to make it more affordable. Frankly, it’s crazy to expect a young family with limited funds to pay $5,000 for a comprehensive plan that they don’t need; or for an older couple to be forced to pay upwards of $8,000 for a plan that they do need, but can ill-afford.
If the major recommendations of the review are implemented, the cost of financial advice should be substantially reduced. Furthermore, the manner in which advice can be accessed will become more flexible and tailored to clients’ needs, rather than towards satisfying the complex and costly compliance requirements of an AFSL holder.
Of course, given such a detailed report and set of recommendations, it was never likely that industry participants, consumer advocates and the Government would endorse every word of the review. However, the art of political compromise being what it is, the risk is that none or not enough of the recommendations will be adopted to make much of a difference. They may even do some harm. As a result, no one will be happy, especially consumers of advice who, after all, are supposed to be the principal beneficiaries here. And the advice industry will continue to be burdened by an ineffective compliance regime which serves no one except a burgeoning army of compliance officers and risk consultants.
Code of Ethics
The second limb of the solution is the mandatory Code of Ethics. This important document has tended to take a back seat in recent times. And yet, its proper and comprehensive implementation is the key to delivering the trusted financial advice sought by consumers.
Readers may recall that late 2021 the (now defunct) FASEA sought submissions on the wording of the Code. Apparently, some complainants had suggested that certain of its words are unclear in their meaning and consequences. However, perhaps the uncomfortable truth is that the words are actually rather too clear, especially on matters like the controversial Standard 3 and its potentially fatal impact on all form of conflicted remuneration (commissions, asset fees, profit shares from platforms, in-house products and the like).
We await an announcement from the Government on this subject. If the result is a dilution or reading down of the Code to politically accommodate the variety of conflicted business models and interests in the industry, that will be a sad day for the aspiring profession and for consumers. The Code of Ethics will have been rendered ineffective and certainly not what its writers intended as a way to transform the industry into a true profession.
It’s clear that consumer advocates are concerned, not unreasonably, that unless reductions in the cost of advice, as proposed by the Quality of Advice Review, are combined with the industry’s adoption of the highest ethical and professional standards for its members and clear enforcement by the regulator of those standards as outlined in the Code, all that will happen is the industry will sell a lot more (and cheaper) advice without any assurance of its trustworthiness. That would be a disaster for consumers, not to mention for the government. It must not be allowed to happen.
However, if the two limbs of the solution (as outlined above) were to be accepted and implemented concurrently, most of the issues with which the industry has been grappling for decades (and for which it has been reasonably criticised and excessively regulated) would soon disappear. Advice would become affordable, accessible and trusted. That’s the Holy Grail of true professional financial advice and it’s readily within our grasp. So instead of stressing and compromising over the reactions and demands of various commercial interests who tend to make a lot of noise, we should grasp the extraordinary opportunity before us to resolve the industry’s major reputational and ethical issues once and for all.