If we could gaze into a crystal ball, what would a post-Quality of Advice Review (QAR) advice landscape look like? Would advisers be jostling for space with super funds and other providers, carefully protecting their client base from being poached?
Or would the client segments be carved up more neatly?
Advisers would continue to focus on segments that they can service efficiently, given the cost to serve. Traditionally, these are the high net worths and, increasingly, as technology enables greater efficiencies, the mass affluent. Other advice providers such as super funds would then be focused on the mass market – the majority of Australians who need advice, but currently cannot access or afford it.
Flowing on from this, how would consumers be made aware as to the nuances between the different providers? The quality of advice has been strengthened over a number of years as a result of the move towards the professionalisation of our industry, through an uplift in education standards. It makes sense to distinguish financial planners – who must meet specific standards and have the capability to offer a service beyond limited advice – from other potential advice providers.
To address some of the concerns advisers have raised since the final report of the QAR was released, this article discusses the rationale for opening up advice. It also explores how the financial advice label could be applied.
My prediction is that, if the QAR recommendations are implemented, advice will be more accessible for the vast numbers of Australians who are currently missing out. Typically, it does not make business sense for advisers to service customers seeking limited or simple advice solutions, and so competition in this specific area between advisers and super funds, I expect, would be minimal.
Some of these Australians might find, after receiving advice from their super fund, that they need the next level of service which financial advisers can provide, and therefore the potential target market for advisers will expand. Far from being threatened, advice practices will continue to thrive.
Super funds
When the final report was released in February this year, some in the industry raised concerns about the proposed ability for superannuation fund trustees to provide more advice to their members.
Before I turn to some of those queries, it is important to remember what the review was tasked to achieve: to investigate the impediments preventing consumers from accessing affordable quality advice; and to provide recommendations around this. There are three key elements here: access, affordability and quality.
It is almost impossible to look at these elements in isolation as they are intrinsically interrelated, but at a high level what I am sure everyone could agree on is that all Australians should be able to access advice if they seek it. Whether they take up the opportunity to access advice is another matter, but they should at least have the option to access advice.
Around 670,000 Australians intend to retire in the next five years (with 220,000 doing so in the next two years)[1] and the main factor that will influence their decision about when to retire is financial security. For many, we know that one of their most valuable assets, as they approach retirement, will be their superannuation. Saving towards retirement, and the appropriate use of those savings is important, and many Australians can benefit from getting financial advice so they can plan to achieve their financial goals and enjoy their retirement. Superannuation funds are well-placed to assist in this area.
One of the concerns that has been raised in this area is that the superannuation funds might be poaching clients from advisers. Whether or not this is true could come down to the strength of the client-adviser relationships and the value the client sees. Advisers with trusted relationships will no doubt be used to fielding questions from clients who may have seen or heard something that sounds appealing, only to have their adviser point out the limitations or potential broader implications. In the case of seeking limited advice, the adviser many need to point out that the advice is potentially limited to their interest in the fund and not their overall circumstances.
The expansion of advice
Now this relates to another important question from this potential expansion of advice from a super fund – how broad can the advice be? The Government, in its response to the Review recommendations, has discussed this under their stream of reforms that are aimed at increased access to retirement advice. Retirement advice necessarily includes a review of super, but it is so much more than that. What are the impacts on any potential social security entitlements, such as the age pension? How many superannuation accounts does the client have, and how do these work together? What investments does the client have outside super? Are there aged care needs to be taken into consideration? What are the client’s estate planning intentions, both with regard to their super and non-super assets?
What is vital is where the line on limited advice gets drawn. This needs to be crystal clear for both providers and members. Digital solutions could be well suited for intra-fund advice because of the ability to code-in this boundary. Technology can support advice, but it cannot replace the human interaction – through which unmet needs can be uncovered, with empathy, and trusted relationships built.
Professional requirements and the ‘financial adviser’ label
Financial planners have been on a professionalism journey for some time now, but professional standards only apply to relevant providers of personal advice. Where the advice is to come from a superannuation fund, these requirements may not apply. I say may not as there are already some intra-fund advice models in place, but the end adviser currently is a relevant provider, as required under the law.
However, under the proposals from the Review and the Government’s response, there may be instances of certain advice provided by a non-relevant provider. In these circumstances, what education requirements – both formal and ongoing – should apply? It was pleasing to see Minister for Financial Services Stephen Jones has heard industry concerns in this space and acknowledges (as part of his speech when releasing the Government’s response) that this is something that needs to be considered.
Whilst an intra-fund advice solution may have a role to play into the future, there is one more important consideration that should be called out, around consumer (or in this case, superannuation member) awareness. Where the intra-fund advice is not provided by a qualified financial planner (that is, it is provided by a non-relevant provider), this should be made clear to the member at the start of the intra-fund advice process.
Only a relevant provider – someone who has met all the experience, education and training requirements – can call themselves a financial planner or financial adviser. This is enshrined in the Corporations Act. Today, financial advisers must meet certain requirements if they want to call themselves independent – and if they do not meet the requirements to call themselves independent, they are explicitly required to disclose why they are not independent. Would it not be reasonable for a similar approach for intra-fund advice?
If the advice provider is not a relevant provider and therefore cannot call themselves a financial adviser or a financial planner, there should be a positive obligation on that advice provider to make that clear to the advice recipient at the start of the process. And like the proposed disclosure requirements for wholesale advice, the member should be made aware that this means the advice provider has not met the education requirements of a financial planner and is not bound by the Financial Planners and Advisers Code of Ethics.
Such an approach would allow a member to make an educated and informed decision on how they start their advice experience.
[1] Australian Bureau of Statistics: Retirement and Retirement Intentions, Australia, 29/08/23,https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release
In principle, I agree with the headline and body of this article.
What it fails to achieve though, is moving beyond the dichotomous argument of ‘us and them’ in an attempt to move towards a rationale for ideal professionalism in its structure for our industry, as noted in a model used by the medical and legal industries referred to throughout the QAR and FoFA developments.
What is needed is an integration of both intra-fund relevant providers and financial advisers operating in a coordinated structural delivery system to deliver advice for every Australian, with a clear pathway known by customers and clients of who to go to for which type of guidance/advice they are seeking.
Many have argued on the shape this takes (SoAs, RoAs, Safe Harbour Steps etc), rather than the structure which will facilitate a better ‘delivery shape’ of limited and unrestricted advice.
Both the legal and medical industries – essentially – have two tiers: general (limited) advice (GPs) and specialist advice (medical specialists). Both have prescriptive abilities to implement a protocol for treating the condition.
The legals have Solicitors and Barristers, each with their field of permitted operation when representing legal matters before the hierarchy of the courts. Again, both have prescriptive abilities to make representation to the courts to resolve the condition.
What our industry could benefit from are non-relevant providers (Super funds as an example) operating to provide guidance on how their product can assist the customer to achieve retirement goals, noting that ‘product advice only’ eliminates further considerations and investment options only available to the Adviser tier.
This is the structural concept I believe is required to integrate product providers (e.g intra fund advice for Super) with Advisers operating within the boundary of their regulated permissions under the Corps Law 2001.
If anything from a Service Communication perspective, the mere fact that Super Funds will be having conversations with their members about retirement options will by default, create a higher level of awareness of the need to seek specialist advice which only relevant providers can deliver, thereby securing a regulatory protected market free from unregulated competition.