You don’t need to be a genius to guess what the media’s reaction will be when the regulator takes action for poor advice, or worse, for the first time against an adviser who has been allowed to remain in the profession based on their experience rather than educational qualifications, and who has not completed any ethics education.
It’s bad enough even when qualified advisers get pinged. But this scenario could take it to the next level: here’s someone the profession could have agreed should be asked simply to meet the same qualifications as everyone else, but didn’t. There will be questions about why the adviser wasn’t held to the same standards and why the profession and, frankly, the government, allowed it to happen.
A proposal for the ASIC Financial Advisers Register to indicate which advisers are in the industry by virtue of attaining formal qualifications and which are there by virtue of longevity is not a bad idea, as might be the idea of requiring advisers to explicitly disclose the same. Consumers have the right to be fully informed about the individual whose services they’re considering buying.
The experience pathway option is only happening because of the number of advisers choosing to leave the industry rather than comply with new education and qualification requirements. A desire to stem the flow of advisers from the industry is understandable. However, grandfathering of experienced but unqualified advisers could lead to some unpleasant consequences.
In any case, as the Minister for Financial Services Stephen Jones has said the education pathway concessions won’t make much of a difference to the accessibility of advice anyway.
It’s only a band-aid solution
Even if grandfathering advisers based on experience rather than qualifications were to succeed as an accessibility measure, it’s still only a band-aid solution and potentially carries some downside risk. A bigger question keeps cropping up: where are significant numbers of new advisers going to come from?
But rather than trying to answer that, let’s instead examine the premise underlying the question, namely, that we need more advisers – specifically, more advisers that look, behave and deliver services the way advisers on the ASIC FAR currently do.
That seems to be the conventional wisdom and the assumption upon which many other conversations in the profession seem to be based. So let’s challenge it, to see if it stacks up.
But let’s be clear here: we’re not arguing that we definitely don’t need more advisers, we’re simply putting forward an alternative view. If the argument that we do need more advisers holds up, then let’s get on with the task of figuring out the solutions.
The idea that we need more advisers is based on the belief that many more people could benefit from financial advice than already receive it. That may be so, but we’ve yet to see evidence of masses of people complaining that they want to see an adviser and are being turned away. To be fair, not having seen the evidence doesn’t mean it doesn’t exist, only that we’ve not seen it. So if it’s out there, let’s see it.
The benefits of financial advice may be real, but if people aren’t actually seeking advice that point is moot. A need for thousands, if not tens of thousands, of new advisers to meet demand therefore might be overstating things.
One of the reasons more people don’t seek advice is that they don’t trust financial advisers; trust would be greater if advisers were held to the same education and professional standards as other professionals. Grandfathering experienced but unqualified advisers into the profession isn’t going to help improve trust.
It’s also true that the kind of advice many people might benefit from isn’t economical to deliver under most current advice business models. New, mostly digital delivery models are emerging that will efficiently serve the less complex advice needs of more people. We don’t necessarily need more formally qualified advisers to deliver this advice.
Supply up, price down
From a commercial standpoint, if new advisers were added to the market at a rate that meant growth in advice supply outstripped growth in demand, there could be a few implications. In classical economic theory, increasing the supply of services or of goods in the absence of (or faster than) an increase in demand results in a fall in the price of those services or goods.
A fall in the price of advice (in the absence of cutting the cost to serve) isn’t good news for incumbent advisers. And it’s worth noting that it’s not unusual for entry to a profession to be restricted for exactly that reason – it’s one way that members of a profession protect their incomes. Until (and unless) demand for advice increases, there’s no need to rush new supply to market.
On the other hand, if we assume that not all newcomers immediately become self-licensed, increasing the number of advisers could lead to an increase in revenue for licensees. It could lead to an increase in association memberships (again, revenue-generating). Vendors of technology, platforms, and investment products may stand to benefit from a greater number of advisers using their technology and channelling funds onto their platforms and into products. But that’s only if the new advisers can find enough clients quickly enough so they don’t go out of business.
There really might be a need for thousands of new advisers to enter the industry and solve the advice accessibility issue. But there equally may not be quite the need we’re led to believe there is. And the need might not be urgent enough to justify diluting professional and education standards for a benefit to consumers that is far from certain.
Opening the door, very carefully, for other kinds of advice providers may be a more effective way to get more simple advice to more people more quickly, without undermining the professional and financial standing of existing advisers.
A lot of the points raised in this discussion are valid. However, as the writer states, “lets see the evidence”. Our 5 financial planner are not turning away customers unless they’re not a fit to our business. Those turned away amount to a very small percentage of inquiries. I agree with the 10 year curtain on experience. Advisers have had decades to upskill. Why haven’t they? There are no excuses! Furthermore, we need to look to the experience of overseas advisers and the number of clients they service. I did that exercise a few years ago and found it interesting that we had more advisers per head of population that anywhere else. I didn’t see any reason we need a lot more advisers per head of population than other similar countries. That may have changed a bit over the last 2 or 3 years but what has also changed is the ability to service more clients. I know one adviser servicing 250 client groups successfully. I believe it is possible to service up to 200 without difficulty if efficient processes and the right technology is used. The transition to a profession is not without teething problems but is a process we need to achieve. I’m tired of excuses and I’m tired of the whinging.
There is so much rubbish and inaccurate information in this article it would take a long time to draft a full response. Suffice to say that every adviser I speak to says they are turning away prospective clients every week. Also it doesn’t take a mathematical genius to calculate that if nearly 50% of advisers have left in the last few years, and assuming they all had clients they serviced, then there must be a current severe shortage of advisers.
As Stephen Jones said, “An experience pathway should always have been a no brainer”.
Simon, thanks for the thought provoking article. Testing assumptions is vital for lucid decision-making. A couple of observations on your thoughts and the thoughts of the other contributors.
At one stage, I, with no financial planning degree, employed two staff who both have them. On not one occasion did I ever have to consult them for advice on anything. They leaned on my 20 years of experience every day. There is literally no benefit to the public is me obtaining a piece of paper that says I should be able to perform a function.
Not all advisers who have left the industry have done so because of the education requirements. The regulatory quagmire has played a significant part.
The regulatory quagmire is responsible for many costs, and the costs prevent people from obtaining advice. Prospective clients consult my office on a regular basis and some of them choose not to engage based solely on the costs. In the context of whether we need more advisers, if the regulatory burden is resolved, we could all profitably service more clients. So, it is more than just an education issue.
The solution has been delivered to the government in the QAR. Michelle Levy has done the heavy lifting – all we need now is the government to act.
Simon, you don’t need to be a genius to guess what the media’s reaction will be when the regulator takes action for poor advice, or worse, time and time again against advisers who have only qualified due to passing some sort of academic qualification, but not had sufficient experience…
The education pathway was, in fact, a band-aid solution to problems created by “Licensees” who had vertically integrated advice models based upon the value and profit they could get from the industry, as opposed to the value they could add to peoples’ lives. Sadly, many of the advisers employed by these “profit centres” had a different “god” than the clients they were supposed to serve, because they wanted and needed to keep their job, but those advisers were not the advisers who will benefit from the experience pathway.
The remaining experienced advisers have completed the Ethical unit, so please, stop thinking that a few extra advisers are going to “water down” the profitability of your operation simply because of some slightly higher supply and minor lower demand issue. My experience tells me that those (now orphaned” financial advice clients would prefer an adviser that had 30-40 years’ experience than one fresh out of Uni with maybe two years’ experience.
Simon, thanks for the article and adding to the debate, but there is another solution to ease the problem. We have great financial planners in Australia but that doesn’t necessarily transfer to becoming a great small business owner with efficient and scalable business systems. There should be more encouragement and teaching of planners to get the most out of available technology, outsource menial tasks and embrace managed accounts, that would allow them to take on more clients without dropping servicing standards. There are now many wonderful outsourcing businesses throughout out Asia that are ‘purpose-built’ to take repetitive and other tasks (typing, for example) out of the modern Australian planning business. Calendly, iFactFind, Xplan are examples of under used technology and businesses such as Asendium and Padua are just a few examples of how to improve back office efficiency. It is not easy running any successful small business but our industry needs to promote ‘an efficiency revolution’ to help existing planners take on new clients without the associated headache that would cause in the back office. It starts with building a business system.
Simon, you have asked questions and a simple answer to the proposition of, “Who says we need more Advisers,” lays in the disastrous and clearly proven “real world” that every Australian who has quality Life Insurance, Income Protection, Trauma Insurance and Own Occupation Total and Permanent Disability cover who are now paying DOUBLE for their Insurances and new clients who are faced with inferior and very expensive Insurance DUE to the idealistic and utopian improvements to Professionalism that had then and still has, ZERO common sense, or economic reality.
When you enforce ridiculous Regulatory imposts that make it too hard to stay, or join as a specialist in the Life Insurance sector, by forcing Advisers to do studies that 9 out of 10 courses have little to ZERO to do with the work performed, then you have a Socialist system that fails everyone.
Socialism, is a system based on a political and economic THEORY advocating state ownership of the means of production and distribution.
Note the word theory.
What has been pushed by vested interest groups and gained traction due to insufficient push back from hands on practitioners who have not been forceful enough, nor had the time and resources to effectively fight back, though over the years we clearly warned of what would and did happen to the Advised Wealth Protection Industry and the impact to Australia as the insanity prevailed.
You get what is forced upon you if you allow lobbyists and vested interest groups to buy their way into Government policy and brainwash Government minders by convincing them that “THEIR” truth is the only truth.
I have said it for many years that Lobbyists should be held to account and if found to be lying or telling half-truths, they are then fined millions of dollars and banned from further lobbying.
That will not get up, as that can of worms would catch out just about every vested interest group, though it would reduce by 99%, the rubbish that is allowed to flourish like weeds with no pesticide to keep them under control.
Simon, you ask about and question the importance of numbers of Advisers if it could impact the perceived Professionalism.
Due to the “improvements,” thousands of exceptional Advisers who provided great service and advice in the risk space are now gone and we are down to hundreds of specialists.
Holistic Financial Planners are scoping out Life Insurance Advice and there is a need for 20,000 risk specialists to service the millions of Business owners and around 12 million individuals who need appropriate cover, though cannot find an Adviser to help them any longer.
The question that needs to be asked and answers that MUST be provided is;
“What cost are we, as a nation are prepared to lose, in order for an ideal vision to be fulfilled so the top 20 percent wealthiest can feel good about their Adviser, while the remaining 80 percent suffer from insufficient knowledge and the ability to know what it is they need, to improve their financial and emotional wellbeing.
Full Financial Advice and Planning in the real world is not about doing it all NOW.
For most people, it is a series of steps to alleviate a problem that needs fixing now, then we can move on to the next thing when we have the time and resources to tackle it at a later time.
Financial Planning starts with the foundations, which is Wealth Protection.
It then leads on to the other specialist fields.
It is ironic that we force risk Advisers to adhere to totally unviable and time wasting theory based education that for the most part, has nothing to do with the work performed.
Then the Government, Regulators, even now the Education guru’s who are seeing less Advisers to flog their courses to, seem perplexed that there are so few risk Advisers left and virtually NIL new specialist risk Advisers coming through the University pipeline.
The solution 10 years ago was the same it is today.
Make it feasible, viable and executable to encourage, not drive away good people away.
When we will we EVER learn?
Dear Simon: Surely you’re not disputing the facts that – the number of financial advisers has dropped dramatically – and that the costs of using an adviser have increased significantly – over the last 2 or 3 years. Check out the CoreData 9/2022 report. 73% of those Australians surveyed said they are not using an adviser because the adviser’s costs are too great. There’s a very significant supply/demand imbalance NOW – something Michelle Levy has attempted to address. Now to the professionalism of those financial advisers who remain in the profession. Every financial adviser that you can see on the ASIC register – every one of them – has sat an ethics unit – the FASEA exam. When are we going to stop pummelling them – asking them to undertake more and more academic study? I say – give them a break and let them get on with the task of delivering quality and cost effective advice to the many Australians who need it.
This argument is an oxymoron. Why should real experience have an end date, but university units have no end date?