The post-Quality of Advice Review landscape should see institutions catering to lower-balance consumers, with holistic advisers working with clients that have complex needs, according to a panel discussion ahead of the government’s response to the review.
Speaking at panel hosted by the Financial Services Council on Thursday evening, CFS Superannuation CEO Kelly Power said the current environment has been “a disaster” for lower-balance clients seeking advice.
“Who is going to invest in giving those people who have $100,000 [balances] advice?” Power said.
“It’s not small boutique licensees, because they have a lot of clients sitting there and are quite profitable – in many cases they’re maxed out.”
Power said organisations like CFS and industry funds will ultimately be relied on to carry the load for mass-market advice, leaving higher-balance clients with complex needs to holistic advisers.
“That was the role that banks played,” Power said. “Say what you will about what happened with that, they were once the incubators bringing in advisers, creating that learning platform, educating them, so they could then go off into these larger licensees. There’s none of that now, there’s no one doing that.”
Power said her business would benefit from any QAR proposal being implemented and the company is behind any change being made.
“We’re being quite pragmatic because ideally we could help those people that have $100,000; but equally, I’d like to see other advisers be able to service more than 100 clients, maybe 200 because that’s a 100 extra people that get a better outcome,” Power said.
Taking the game on
While the advice community has clamoured for red tape reduction that would free up time and reduce the cost to give advice, there remains the issue of how many clients advisers can realistically create a personal relationship with.
At the Professional Planner QAR Roadshow in March, Minister for Financial Services Stephen Jones said there are 5 million Australians looking for advice with fewer than 16,000 advisers to service them, essentially meaning advisers would need to serve more than 300 clients each to close what he believed was the advice gap.
Dunbar’s number, named after British anthropologist Robin Dunbar, suggests the maximum number of stable relationships that can be maintained by an individual is around 150.
Despite famed US adviser and commentator Michael Kitces suggesting the ideal number of clients sits between 75-125, last year’s CoreData Licensee Research found advisers were averaging around 150 clients.
HUB24 chief executive Andrew Alcock said while the advice profession will benefit from Jones’ “quick wins” to simplify regulatory red tape, they won’t move the dial on the access to advice.
“It’s going to make it easier to spend more time with clients, but I don’t think it’s going to open up, on its own, advice provision to the mass market in that way,” Alcock says.
Alcock added the recommendations that could give super funds and other institutions the flexibility to give more advice will help accessibility, but it won’t address the supply of independent, holistic advisers.
“The part of the industry saying we need to grow more advisers through [the professional year], I’m not sure that in itself will be solved in the short term,” Alcock said.
Breakfast at Stephen’s
The Minister is expected release his response to the Quality of Advice Review shortly and an invitation leaked to ifa magazine revealed he will announce the government’s response at an ASFA member-only breakfast on 13 June.
An ASFA spokesperson confirmed to Professional Planner the event and that it will be attended by CEOs from retail, industry and corporate super funds.
During the aforementioned QAR Roadshow in March, Jones showed little interest in taking on Levy’s proposals wholesale and told a post-budget briefing held by the FSC that the changes would be implemented three pillars based on how long it will take to implement.
Power said she was pleased with the acknowledgement in the QAR report that super is just “one need at one point in time” and the ability for super funds to be able to answer member questions with greater clarity would be a significant change for the better.
“A super fund gets 3000 calls a month with people asking for investment advice, moving to retirement,” Power said.
“About half of them we can kind of answer, just. The other half might be a referral. If we can get a superannuation carve-out and funds can actually answer questions and help, I’m going to be fine with it.”
Digital future
Brett Jollie, managing director of abrdn, said the ability to bring digital advice to Australia has been limited due to lack of clarity from regulators as well as trepidation from licensees who don’t want to take on the compliance burden.
“We built a solution that we believe is compliant in the current regime, but the lack of clarity and confidence of the licensees who take the risk – they take on the solution under their licence,” Jollie said.
He added it’s difficult to approach regulatory frameworks like the Best Interests Duty and safe harbour steps in an automated fashion.
“We believe we have a compliant solution, but we can’t get it to market,” Jollie said. “In part that’s because we don’t have a regulator standing behind us saying they believe that’s compliant.”
The firm co-launched the Australian Digital Advice Association MoneyGPS, Advice Intelligence and Ignition Advice earlier this year to better advocate for regulatory change for digital advice.
“If these [QAR] proposals came in, we’d be looking at bringing a great deal more technology than we already have,” Jollie said.
As adviser numbers continue to fall, it does appear obvious that the opportunity will be there for the remaining advisers to service more clients. As practice owners and AFSL’s think about how they can achieve this, they need to let go of the limitations posed on their thinking by references to Dunbar’s Number.
Dunbar’s research was on primates and their social groups, and then extrapolated to humans based on relative sizes of the neocortex. It has since been rejected by a number of other researchers and can be summed up as this:
In summary, extrapolating human cognitive limits from regressions on non-human primate data is of limited value for both theoretical and empirical reasons. It is our hope, though perhaps futile, that this study will put an end to the use of ‘Dunbar’s number’ within science and in popular media. ‘Dunbar’s number’ is a concept with limited theoretical foundation lacking empirical support. The way advice relationships are created and maintained is ready for re-creation, and the diversity of offerings and business models will increase. What will be most interesting is whether the creators and implementers of these models will have based their projections on the realistic expenses required to provide their services compliantly, and to provide an appropriate return for the risks in providing that advice. The final determinant of success will be whether their clients will see value in the new models that may come with less adviser-contact and more interactions with support teams in the practice.