The world of general advice looks poised to evolve following the Quality of Advice Review.
Amongst the raft of changes from the government response to the QAR will see red tape reduced for advisers and the controversial call to give super funds to give more freedom to give an expanded remit to provide financial advice, which make up stream one and two of the reforms.
Stream three will involve future consultation on broadening the definition of personal advice (QAR recommendation one), removing the general advice warning (recommendation two) and allowing non-relevant providers to provide personal advice (recommendation three).
Lifespan Financial Planning CEO Eugene Ardino says any changes are likely to leave general advice extremely limited to things that are generic or statements made to people whom you have no personal information about.
“I think general advice will largely be replaced by personal advice that can be provided by non-relevant providers employed by super funds and possibly Australian financial services licensees,” he tells Professional Planner.
“In any case, as QAR is implemented, I believe the government does intend to create a framework allowing certain non-relevant providers to provide simple advice that many consumers cannot get access to under the current framework because non-relevant providers cannot provide it and relevant providers find that it isn’t commercial to provide it much of the time.”
Sydney-based Wealth Network co-founder Dean Holmes believes the evolution of general advice will depend on how much information different service providers have on their customers.
“There will be a variety of players coming in, but it will be centred around having customer information and then having machine learning algorithms that can be run off the top of that to help people make decisions,” he says.
“The banks have a lot of financial information on clients and their spending activities. Google and Apple also have information on spending activities given so many people pay for things with their mobile phones.
Holmes adds superannuation funds have some information on their customers, but not enough.
“They might know customers’ age, life stage and whether they’re getting employer contributions, but they know nothing about their assets outside of superannuation, cash flow, goals and objectives, family status and spending activities,” Holmes says.
Holmes believes that super funds will need to upskill and boost the amount of information they have on customers if they want to give advice as opposed to general information.
“They would have to in that regard and we’re not sure that consumers trust the super funds to give them extra information,” Holmes says.
However, Ardino believes super funds are well-placed to provide scaled advice to their members.
“There will also be more opportunities for professional advisers to collaborate with digital advice providers, offering professionally managed portfolios at a lower cost,” he says.
“These digital advice offerings will focus on education and engagement and track the investor potentially to the point where their financial needs become more complex and they need professional advice. AFSLs will also be well placed to do both where non-relevant providers could provide advice alongside relevant providers.”
Holmes expects tiered advice in the future. “I don’t think it will have anything to do with different primary levels of education and experience,” he says.
“Tiered advice for me is the concept of a single strategy at a single point in time and then comprehensive advice. I think we need to move to an option that allows consumers the ability to opt into an advice relationship and get one part of their advice solved and then opt out of the systems where they can do it on their own.”
Holmes doesn’t believe technology is going to play a role in terms of general advice, except in providing general information or scenario analysis.
“It will allow an individual to go into a website and put in their details and that website can give them some general information and ranges of possible outcomes,” Holmes says.
Ardino anticipates that social media will continue to play a major role in building the financial literacy of Millennials and beyond.
“Professional advisers will need to step up and lean more toward social channels and seek to educate and inform existing and potential clients and essentially, meet them where they are,” he says.
“Licensees will need to adapt and better understand the provision of information and engagement online, especially when the expansion of the personal advice definition comes into play.”
Meanwhile, Holmes would like to see the word advice removed in relation to general advice and changed to something like information.
“The idea of general information has been around for the past 100 years, helping people who don’t want to get advice and make decisions,” he says.
“The fact that there are millions of baby boomers approaching retirement means that we do have to make sure that people are getting accurate, correct information. If they want to move into advice, well, that’s a separate story.”
None of proposed changes addresses the real issue, which was a fatal error in the 2001 legislation that defines information about a financial product as advice, It took 20 years for the flaws in the 2001 legislation to be revealed and unless there is a fundamental review of the basic assumptions, it may take another Royal Commission in another 20 years before the legislated definition of product information as “advice” is removed.
There is no logical reason to prevent a super fund recommending a product as being a more suitable alternative from the range available from that super fund. The basic fact is that information about products, even if intended to improve the outcome for the user, should never have been legislated as “advice”. This is the equivalent of giving information provided by drug reps the legislated status of medical advice.
Reform of financial advice should start at the source, the basic flaw in the definition of advice in the 2001 legislation.