The head of AMP is confident practices in the company’s advice network will see 15 to 20 per cent capacity increases if the Quality of Advice Review changes are implemented, based on feedback from its advisers.
“That’s significant,” AMP chief executive Alexis George said at the Professional Planner Licensee Summit in Katoomba, in the Blue Mountains west of Sydney, on Monday. “I do think it will allow those advisers to see more customers.”
The Minister for Financial Services Stephen Jones announced his response to the QAR in the previous week at a breakfast hosted by the Association of Superannuation Funds of Australia.
The government’s response has been split into three streams with the first focused on “quick wins”, particularly around those for financial advice, while stream two focuses on the expansion of intrafund advice.
AMP Advice CEO Matt Lawler noted after the announcement his hope for a 15 to 30 per cent increase in adviser capacity if the proposals are implemented properly.
George said she would like the changes in advice to go further and tackle general advice which is going to be necessary to help educate Australians and improve financial literacy. “We do have to face into the general advice issue that exists in my mind,” she said.
George, who attended the ASFA breakfast, said she was unsure what the second stream will mean and how it will affect what advice can be given by super funds.
“I understand the minister was trying to tackle the retirement issue and he sees that as a big issue,” George said.
“But there’s a much broader problem here and we’ve got a way to go in understanding the educational requirements of that advice and what he thinks the scope will be.”
She added that although it may not solve the broader advice problem, it’s the best step forward the industry has had in a long time. “Let’s encourage the minister to be brave and take more steps forward.”
Insignia Financial CEO Renato Mota said the advice accessibility and affordability issue is a complex dilemma that has no silver bullet solution.
“There’s not going to be one answer,” Mota said. “I’m hopeful there is a combination of a series of different answers that nudge us in a different direction.”
Mota referred to the objective of QAR, which was to examine ways to improve the accessibility and affordability of advice, noting improvements in efficiency will help accessibility.
“The affordability question is an important one, but we shouldn’t lose sight of the value that’s created because we very quickly go to price – and price is important – but the value that’s been created is manifest,” Mota said.
“We’re serious about improving accessibility to all or the vast majority of Australians. We also have to be realistic that it can’t involve at every turn a human interaction, because humans don’t scale particularly well.”
Mota added this meant using technology where human interaction can follow at the right point in time.
“Unless we solve for the role of technology and the use of technology, I’m not sure we’ll solve for accessibility,” Mota said.
Separation of church and state
Asked by session chair, Conexus Financial managing director Colin Tate, if both believed advice can be sustainable without income from product, George replied “it has to be”.
“If we start going back into cross subsidisation of whatever products with advice you end up with conflicts,” George said.
“It’s a very unique person who can manage conflicts over an extended period of time in my mind. Advice should be valuable for advice. I feel really strongly about this and anyone who lived through the [Hayne] Royal Commission… we got ourselves into trouble because we weren’t able to manage the number of conflicts that existed.”
Mota said advice end-to-end is profitable, noting data of high margins for advice practices. However, the issue is how that is being shared back to licensees to ensure financial sustainability for those businesses.
“The advice economics are attractive because it’s an attractive industry, delivering value to clients,” Mota said. “The issue for licensees is what portion of that is being shared with the licensee.”
Co-existing in a complex ecosystem
In a room filled with competitor licensee heads, George and Mota were challenged how their business models fit in that ecosystem given they are still tied into other adjacent sectors like superannuation.
George said the goals of their licensees aren’t any different.
“That’s why we’re both [AMP and Insignia] are trying to be quite transparent about the different businesses,” George said.
“We’re trying to turn our licensee into a professional licensee that stands on its own two feet and isn’t cross-subsidized by the rest of the businesses. We need to make it sustainable to re-invest in it.”
Mota similarly challenged the notion it was a different playing field, pointing out the non-bank licensees are sustainable, and the licensees acquired from the banks are on the path to profitability.
“Any licensee will look to create value equations and be rewarded for them, whether those value equations are owning practices, providing services, portfolio construction,” Mota said.
“These are all methods where the licensee is in partnership with the end practice. I don’t see our business being any different.”
Both Insignia and AMP’s wealth divisions are still working to hit breakeven, with Mota noting Insignia is aiming to stem losses from its licensee operations in FY24, and AMP is on a similar trajectory.
Asked what AMP and Insignia can contribute to the profession presenting itself to the public better, Mota said the industry was in a reformation process developing a new set of capabilities to serve Australians.
“I say that because the vast majority of some of these assets have just come out of banks… we are still pulling those capabilities together,” Mota said.
He added AMP is part of that reformation process and the two wealth giants can work with the industry funds who offer a different capability.
“The whole sector is reforming,” Mota said. “We’re trying to remake what hasn’t been there for 20 years.”
George added the industry has been fragmented over time and praised the merger of the Financial Advice Association which further helps the industry come together as one.
“I know I’ve said this before, but many of us go to Canberra… but we don’t always go in with a united force when it comes to financial advice,” she said.
Getting fit
Insignia teamed up with researcher McCrindle to launch the Financial Freedom Report which identified a third of Australians don’t get any financial education as part of their curriculum.
Mota said this issue needs to be solved, not only for those currently in education, but also for the adults who are dealing for the consequences of a lack of financial literacy.
“Do we need people to have a Master’s degree to help people understand the concept of a budget? Probably not, would be my starting position,” Mota said.
“There are aspects of that continuum of advice. If you take the personal advice aspect, we fully advocate for the highest standards, qualifications and skills to ensure we continue to reinforce the value and the trusted position an adviser plays in people’s lives.”
Mota said this continuum is essential because the current “one-size-fits-all” system in place right now is ineffective.
“As to what fits along that continuum, our position would be there’s some form of general advice,” Mota said.
“To Alexis’ point, let’s get clarity on what sits inside and outside of intrafund advice. We believe that plays an important role.”
Going back to the QAR, Mota said the recommendations that are yet to be addressed are important and this is a “once in a decade opportunity” to make a positive difference for the advice landscape.
“Let’s not waste it,” Mota said.
“Look at all the recommendations in totality to ensure we are setting the foundations to help us create more financial wellbeing for more Australians.”
George described the level of financial illiteracy as “appalling” for a country as wealthy as Australia.
“Anyone in this room that goes and sits in a contact centre, as I do regularly, it’s in your face, that illiteracy,” George said.
She agreed with Mota that there is a continuum and this is why it is essential to clarify the definition of general advice.
“The fact that we might have some personal information about that customer for me doesn’t make a statement like that personal advice, it’s information to allow them to make a better decision,” she said, using the example of putting a young superannuant in a high growth investment option. “But we can’t do that today.”
