A beacon of light - the Levy report
The financial advice industry in Australia continues to shrink at an alarming rate as it grapples with the shake-up of the Hayne Royal Commission and a raft of new regulation.
Much has been done to rid the industry of its bad apples and codify ethical standards. But sadly, adviser practitioner numbers continue to drop each month. With 13,500 having left the profession in the last five years, we are now down to 16,000 active advisers in Australia. That’s less than one adviser for every 1000 workers.
Like it or not, we’ve become somewhat of a cottage industry with niche, high-cost service models. Perversely, the biggest challenge seems to be providing simple advice at a modest cost. This is due in no small part to various new consumer protections. Each is well-intentioned but adds layers of compliance red-tape and manual processes.
The mass market is woefully under-served.
Despite advances in digital technology and AI, deep pocketed large financial institutions continue to sit on the side-lines with little confidence that they can comply with the jumble of regulatory spaghetti.
Longer term, the key issues for our industry are to earn trust through genuine professionalism whilst improving the accessibility of sound financial advice.
But earlier this month, a beacon appeared on the horizon…
The Federal Government has finally released Michelle Levy’s final report into advice regulation in Australia. Her remit was to put forward a middle ground that gave more Australians access to high quality, affordable advice.
Behold! Could this light be showing the way towards a better place?
Her report was 276 pages long and carried 22 recommendations. Some points that stood out were:
All financial advice provided had to be “good”. This word would become a defined term in legislation, meaning fit for purpose and good in all the circumstances. Not just “OK”. Not just “good enough”. And certainly not “Well, it’s the only one on my list!”
Financial advisers would have a true fiduciary duty to their clients (which means acting in the best interest of their client and always prioritising the client), whilst regular employees of financial services companies (such as bank staff) would probably not, as they have a primary obligation to their employer and would always be conflicted when prioritising “between two masters”. Those employees would need to be very careful to not stray into financial advice when helping customers. To provide clarity, the definitions of personal advice and general advice will have to be recast, precipitating a massive re-write of the legislation.
Once we have regulatory clarity, low-cost personal financial advice will be possible, delivered through a combination of digital advice tools and skilled operator staff. These staff would not necessarily need to be “financial advisers”, the key test would be that the resulting advice was “good”.
Commissions and conflicted remuneration will be allowed in some areas (like life insurance), provided the advice delivered was “good”.
Statements of advice (which have ballooned out to extraordinary lengths) would not be required unless the client commissioned them in advance (although adequate advice records and working papers would need to be retained, to demonstrate that the advice was “good”).
Overall, it looks very promising. From here, the Federal Government will be considering stakeholder responses and then deciding on a way forward.
So, it’s still early days. Implementation will take years but hopefully the beacon in the distance will get brighter, inspiring the advice profession back into healthy growth.
That would mean better outcomes for more people. And that’s why we do it.
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