Big data could help predict the next big advice ‘calamity’

A disaster such as the $1.2 billion loss of retirement savings in the collapse of the Shield and First Guardian master funds could be detected earlier and potentially prevented if more players in the advice chain are able to co-operate to analyse the data they collect.

“Prevention is the opportunity,” says Financial Advice Association Australia chief executive officer Sarah Abood. “I think the opportunity we have now is to get ahead of it, to use big data, use predictive models to work out where’s the next scandal and how do we stop it before it expands to hit $1 billion and 12,000 consumers. How can we find them earlier? And I think that’s where the opportunity is for us.”

She says that one of the most notable features was single advisers signing thousands of statements of advice and “yet we know that the average client per adviser is somewhere around 120, give or take. So that’s an alarm bell that should have gone off and could have gone off earlier”.

“There are a few different places where there are gatekeepers that have access to that data, but it’s not being used in a structured way at the moment.  I think there is real potential there, and that’s the focus for us [in] those big scandals, because data will show you.”

Abood says that if one adviser pulls 500 people into a single product there should be a way to monitor that and raise an alert so it can be checked.

FAAA general manager of policy and advocacy Phil Anderson says there’s no doubt that “we are subject to the next collapse, the next calamity, the next example of consumer detriment, where financial advice was a factor”.

But, while the Future of Financial Advice reforms arose from the collapse of Storm Financial and others in 2009, and ASIC Report 413 Review of Retail Life Insurance also resulted in regulatory reviews, Abood says that the answer to preventing investor losses isn’t the introduction of new laws.

“With Shield and First Guardian, the majority of the poor behaviour seen was already very clearly against the law, so the law wasn’t the gap,” she says.

FAAA complaint system

Abood says that whenever misbehaviour is observed a complaint should first be filed with ASIC. The FAAA can and does file complaints with the regulator, but it also has an internal system for complaints.

“If a member of ours is involved in misbehaviour, then any person, any adviser, any member of the public can complain to us,” Abood says.

That process involves both a board committee on conduct and integrity, and the association’s investigations team. It also has an independent Conduct Review Commission and if a complaint is upheld the FAAA will ban a member and has done so in the past. A list of banned members can be found in the FAAA register of disciplinary action.

However, only members of the FAAA are subject to the association’s own disciplinary actions and it has no jurisdiction over non-members.

FAAA relationship with the government and regulators

The 2023 merger of the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) to create the FAAA has seen positive results, including the voice of advisers being heard in Canberra more effectively now than in the past.

“They are more willing to come to us to get our thoughts, whether that’s on the financial advice reforms or the tax reforms, I feel that we are listened to much more than we might have been in the past,” Anderson says.

The financial advice industry has made progress in the last decade, Anderson says.

“I think that comes from two things: it’s the professionalisation, and that goes back to the FOFA reforms; the professional standards reforms; the response to the royal commission; and the continuing progress with all of that. I think there is a broader recognition.

“The other thing that is really noticeable is that the world doesn’t just react to failures and client losses to immediately blame financial advisers, and what we’ve seen most recently with Shield and First Guardian is very broad recognition in both the government with the regulators that this is a value chain and things have gone wrong in the value chain and it’s been some rogue advisers that have contributed to it, but it’s not reflective of the broader profession,” Anderson says.

The government and regulators are not only listening to the FAAA on issues relevant to a financial adviser perspective but also on issues that matter to consumers, and they regularly consult with the FAAA.

“The shift that we’re seeing now is the recognition amongst government and regulators more broadly that we’re the voice of the consumer,” Abood says.

“They’re not seeing us as some separate kind of force. They’re coming to us to know how things will impact Australian consumers, and they’re seeing us more and more as someone who can give them that unvarnished, fair, and realistic view of how Australians [will] be affected by this change or this this piece of legislation.”

Outgoing FAAA chair David Sharpe says it doesn’t advocate for issues that benefit advisers to the detriment of consumers.

“If you think of your Venn diagram, it’s largely concentric circles,” Sharpe says.

“When we’re pushing for things [such as] to get rid of red tape… that red tape isn’t helping consumers. All it’s doing is adding cost that consumers have to pay. So, it’s actually a net negative for them.

“We don’t go to advocate for a win for us at a cost to the consumer, that’s just not the position. Everything has a consumer lens to it.”