Connect Financial Service Brokers CEO, Paul Tynan, says the future of advice is in peril and that it can only be assured by understanding past failings.
Tynan has produced the following commentary out of what he says is a genuine concern for the future of the financial services advisory sector. He says the outlook for the advice sector is dark and uncertain, but there is still time to reverse the failings of the past and ensure a viable future for advisers with the consumer the ultimate beneficiary and winner…
If the future and well-being of consumers is truly the highest priority of the federal government and financial services industry, then the quality of judgment has to improve and decisions made based on the lessons embedded in the experiences of the past.
The future viability of the advice sector is quite literally at the precipice!
Practitioner numbers are at an all-time low. Exits and premature retirements continue to mount and the industry’s reputation and obsession with over-regulation is dissuading new advice entrants.
It’s for this reason that politicians and stakeholders must ensure that the decisions of the past that have brought about this scenario are not repeated or compounded going forward.
When looking at history, the litany of disasters in the sector has quite literally been horrendous, with the most catastrophic being retrospectivity – basically, a misguided belief that arbitrarily changing the past will improve the present and secure the future:
Education Standards
I haven’t met one person in the industry who does not support lifting standards and the standing of the advice sector with appropriate entry level academic qualifications and ongoing professional development. However, they should never have been introduced retrospectively.
Remuneration
Whether referred to as commission or brokerage, they constitute the cost of distribution that is incorporated into the product by the manufacturer. They are not a conflict of interest. Hence, retrospective banning of commission is wrong.
ASIC (Look-backs)
ASIC’s preoccupation with look-backs has resulted in advisers looking over their shoulders like never before and quite literally living in fear. Bringing down the cost of advice will never be achieved and will only result in more compliance and administrative imposts.
In all seriousness, no industry should be required to operate under a look-back regime of ten years or more. Imagine if politicians or the legal profession was required to adhere to the same requirements!
Buyer of Last Resort
Retrospective legislation by government has given the green light for institutions like AMP to change their buyer of last resort agreements, resulting in drastically devalued businesses for many advisers. This has been another decision that further undermined the standing of government, financial institutions and the industry as a whole.
Through no fault of their own – not breaking any rules or doing anything wrong – retrospective law making and arbitrary changing of contractual arrangements has quite literally brought the advice sector to the point of failure.
The purpose of the advice industry is to provide quality advice that is affordable, scalable and is in the best interest of clients. Consumers have every right to question an industry that, for two decades, has wreaked havoc on itself and advisers and that retrospectively changes rules and overturns supposedly iron clad assurances and undertakings.
We need leadership from both sides of parliament to work together to deliver a sustainable workable framework…
We need leadership from both sides of parliament to work together to deliver a sustainable workable framework, hence my firm belief that the present structure needs to be reviewed with a view to implementation of the following:
Individual Licensing
Move the industry away from a corporate structure to one in which advisers operate on a licensing framework that is no different to other professions such as accountants, lawyers and doctors.
Experience has proven that placing any entity that operates on, and is motivated by, profit, between the consumer and their adviser inevitably leads to a conflict of interest.
The adviser’s sole role must be to act in the best interest of the client, not to a licensing group. The larger institutional licensees have compounded the environment for their advisers by adding extra layers of red tape, complexity and compliance.
Regulation
Regulation and constant legislative tinkering by the federal government has only served to damage the industry and disadvantage consumers by making advice unaffordable. There needs to be a concerted effort to remove this burden.
Who is the Regulator?
The industry is drowning in regulatory authorities and voices demanding to be heard. As if FASEA, ASIC, ATO, TPB, APRA, AUSTRAC, ACCC and AFCA weren’t enough, new bodies are being established in conjunction with associations, lobby groups, academia, institutions, industry super, the media and the list goes on.
At what point do we say enough is enough!
Too Many Voices
There are too many industry associations representing the advice industry vying to be heard (and taken seriously) by government. Until these groups unite and merge into a single and powerful representative voice, it will only reaffirm to regulators the fragmented and self-interest nature of the industry.
Statements Statements Statements
No other advice profession is required to provide so many statements, such as: annual opt in statements, fee disclosure statements, Statements of Advice (SoA), etc. The costs associated with delivering all of these statements are ultimately paid for by the consumer.
The length of SoAs continue to grow – not because clients read them, but out of fear of litigation.
Defining Advice
The provision of advice in reality is demarcated into two clear models – Independent (open APL) and Proprietary (can only provide advice on proprietary products such as industry funds and bank products). The formalisation of this distinction would be of most benefit to the consumer and provide greater transparency.
Technology
A failing and legacy of industry domination by large institutions has been a lack of innovation and the restricted application of new technologies. The advancement and application of FinTech is vital and needed to drive efficiencies and benefit consumers.
Career Pathways
How can the financial services sector attract the next generation of advisers when the current pathways actually inhibit new entrants joining the advice industry? Two decades of non-stop regulatory reform, industry rationalisation and uncertainty has resulted in the next generation of advisers preferring alternate career paths with more attractive work life balance opportunities.
What’s the Answer?
Firstly, a combined effort and joint approach by government can halt the demise of financial services and the advice sector. However, action is needed now with a united effort and joint approach that can create a viable future for the industry and provide affordable advice for consumers.
A good start would be a bipartisan working group NOT comprised of the usual retired judges, lawyers, vocal interest groups and individuals who have no practical experience running an advice business or face-to-face interaction with clients! It’s for this reason that Australia has a track record of royal commissions and industry reviews failure.
There are many quality advisers who genuinely care about the industry and ensuring consumers receive quality advice and service that would gladly participate in a genuine and inclusive bipartisan review.
Secondly, as the world moves into the new era of the digital age, a national priority has to be raising the financial literacy for all Australians. People need to be able to manage their financial affairs in order to improve their standard of living. In addition, it will benefit the economy by improving the strength, performance and efficiency of the financial services system.
I am confident that this approach is the best way forward and would provide the all-important building blocks for a sustainable future for the advice sector – and most importantly – where the consumer will finally be the winner and beneficiary.
Paul Tynan is CEO, Connect Financial Service Brokers
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Agree with Paul Tynan’s comments 100%! Paul can see our industry for what it is through his experience in it. But the legislators, who have no understanding of what the advice industry is and does, have put so many acronym-driven bodies in place that it’s bewildering as to what each expects of us! What an abysmal mess they’ve made of our industry and it isn’t over yet by a country mile. Oh, for some commonsense to realign what was once a delightful business to be a part of.
Paul, thank you for your concise analysis of where it has all gone wrong.
Just a word of caution around individual licensing. In theory, this is a great idea. However, as with most things in life, the real world can get in the way.
The cost can be prohibitive and the hoops that need to be jumped through around complying with the current maze, is a difficult path to tread.
The Regulators are trained NOT to think holistically, like advisers do.
They are robots who have no concern for commercial practicalities.
If we look at what has happened and what is happening, the Regulations and Regulators have killed off virtually all the bigger, well funded players (Good luck IOOF) who had the capacity, though gave up.
The Regulators are now moving like a swarm of locusts onto the remaining players and the only way to stop the further destruction of the industry, is for the Government to rein in all the Regulators.
Putting a different fox in charge of the hen house after the first one killed many of the hens, will not solve the problem.
The fox (AKA the regulators) need to be curtailed and an overseer that actually has practical experience, take over.
Single Licensing in its current format, will mean more compliance, more risk, more costs, less negotiating capability and a blood bath if the regulators come and review each individual, based on the current unworkable mess.
BID is not hard – The regulatory regime with opaque interruptions coming from every direction, make it nearly impossible.
Too many voices is correct.
Talk to many advisers and they will tell you that they feel most of their representatives in the associations, are part of the problem, not the solution.
By merging a plethora of noisy, self-opinionated theorists into one entity, would be, if it was not so serious, a great new Fawlty Towers script.
Only advice experts that have lived and breathed advice, can tell it as it is.
The only way to fix the issues are to make everybody who has an opinion, own it, with the same implications advisers face if they are wrong.
This will never happen of course, though if allowed, the locust swarm would move on and give our industry a chance to recover.
The overriding view being told to Government, is that the cost to provide advice is increasing. This is right, though not enough is being done to spell out that now only 10% of Australians can afford to pay sufficient fees to allow advisers to comply and survive in the current insane situation we all face.
Career pathways. The unnecessary loss of one experienced adviser is a tragedy. The loss of thousands is a statistic and that statistic cannot possibly tell the real impact.
Talk to any Australian and ask them if they rank experience and accessibility to experienced advisers, as more or less important than being able to talk to an eager, inexperienced newly minted adviser with great results from University and nil practical capabilities, or if some grey matter that has lived and breathed what people need and want to know, as more important?
Paul, your analysis of the situation our industry faces today, is one of the best I have read. Congratulations and let us hope the people who can bring about positive change, will read what you and other people who have come up with solutions, will be listened to, with proper changes, based on real world expectations and commercial reality, to be implemented.
Paul is very correct in his assessment. However, the current, crazy situation is due to what financial advisers have done in the past and are continuing to do and therefore a consequence of our reputation.
The main harm to our reputation comes from product providers explicitly being allowed to nudge and control us. Individual licensing seems the best way to deal with our reputation crisis.
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