FINANCIAL ADVICE: A LOSS LEADER FOR LOST LEADERS?

"Life moves on, and so should we.” 

Have you read Who Moved My Cheese by Spencer Johnson? 

It’s one of those annoyingly good books that's easy to read, makes lots of good sense, yet hard to implement. 

It reminded me of the state of financial advice in Australia. 

Affordable Advice? 

It seems financial advice is becoming unaffordable. 

If so, the timing is not good. 

One of the original conditions, when Keating and Kelty convinced their Labor colleagues to support their mandatory superannuation legislation, was the promise to ensure accessibility of retirement advice to superannuants. 

It seems the opposite is happening. 

CPA Australia – the most significant accounting association in Australia - warns about the increasing layers of regulation that will make the price of advice well beyond the means of most Australians. As 25 per cent of advisers is expected to leave the industry, new regulatory costs are hindering their accounting member’s to maximise the ‘opportunity to supply new financial planning advice capacity”. 

It’s not just the accounting associations being adversely affected by the recent regulatory changes. Small advisory firms are finding it tough to control increasing costs as well. 

Recent ASIC research seems to confirm adviser’s fears revealing investors also consider their advisers too expensive. 

As new products emerge with ‘cheaper’ offerings, are we merely witnessing more evidence of predicted trends as professional services are commoditised? Are we heading towards a large superannuation fund like Canada’s with more Australians using different retirement products and advice as advocated by industry architect Jeremy Cooper for years? 

However, advice is not the same as products. 

Is it? 

Needed Advice? 

Now isn’t the time for advice to be getting more expensive. 

Even Paul Keating conceded that his original superannuation system was not designed for superannuants who were well beyond their 80th birthday. He built our superannuation system to support 55 to 75-year old retirees. 

Oops. 

It’s not only that we are living longer. 

New issues are increasing the need for advice regarding our retirements. 

The headlines suggest we are entering new investment territory never seen since 1st July 1992 when our compulsory superannuation commenced – the possible end of risk-free money. 

Goldman Sach’s Andrew Boak has recently reviewed the Reserve Bank’s modelling for the Australian economy. He reckons we are heading towards a negative cash rate, meaning the days of earning a risk-free living from savings are done and dusted. According to Andrew, for those of us seeking returns to ensure we don’t outlive our reserves, it is about to become harder unless we take on more risk. 

But how much risk? 

Those believing someone in government will work all this out for us, need to consider former Treasurer’s London speech about entitlement or worse still, peruse what’s happening in the current review of our aged care system to understand what may lay ahead for us as we age. 

It seems advice is becoming more unaffordable when we need it more than ever. 

So, what do we do? 

Can we delay or re-think these new costly regulations? 

Lost Leaders 

Before we start suggesting more amendments, it may pause to consider the voices protesting. 

Some of those warning about the increasing regulatory costs of delivering financial advice may have only themselves to blame. 

They have complained before. 

Back in 2010. 

Back then, the Accounting Professional and Ethical Services Board (APESB) proposed and implemented a standard of advice for all accountants delivering financial advice known as APES230, that effectively separated financial advice (i.e. accountants’ strengths) from financial products (i.e. not accountants’ strengths). 

The news releases of the time from the various accounting bodies headlined their ‘support of the APESB principles’, however, the then Institute of Chartered Accountants of Australia’s tax counsel was quoted saying “we need to safeguard the long-term viability of financial services” and the National Institute of Accountant’s manager of member integrity was quoted as saying “let the market decide how they want to pay”. 

So, none of the accounting associations (nor the accounting-based financial planning groups such as Count and Professional Investment Services) supported the original implementation of APES230 – total separation of financial advice from product. In an about-face, the APESB rescinded the initial draft and produced a water-down standard allowing accounting members to choose their version of ‘optional ethics’ provided conflicts regarding remuneration were disclosed. 

Ironically, eight years after APESB’s jilted attempts to separate advice from product, in her summary after two weeks of extraordinary public evidence, Counsel assisting the royal commission Rowena Orr, QC, asked the question is it necessary to enforce the separation of products from advice? 

A stunning opportunity for accounting leadership in financial advice was lost. 

If the APESB had uncoupled financial advice from product back in 2010, the fundamental basis of the 2018 Banking Royal Commission – ASIC’s Report 499 Fee for No Service Report – would not have applied to any accounting firm practising financial planning. 

As remediation costs and brand damage from the 2018 Royal Commission continue to soar, when are those still trying to make a buck from delivering financial advice (not products) going to realise their cheese has moved? 

The tribal thinking that defeated the APESB’s 2010 attempts to separate advice from product sales is still very much alive and well and complaining about new regulatory impositions. Unless they learn how to deliver valuable advice rather than costly financial products, they will be left holding the old cheese. 

Despite all the money, time, headlines and analysis spent on enquiries into our financial services sector, the 2009 Ripoll Inquiry, the 2010 Cooper Review, 2013’s FOFA Legislation, the 2014 Murray Inquiry, the 2015 Trowbridge Report, Stephen’s Sedgewick’s 2017 Retail Banking Remuneration Review and last year’s Royal Commission Report, only the Accounting Professional and Ethical Services Board showed the leadership to make a real, if only brief, attempt at the core issue that financial advice is not a financial product. 

 The primary question isn’t about controlling cost – it’s about how to deliver valuable, transparent advice to more Australians when they need it the most. 

That’s now. 

What do you reckon? 

Cheers,

JIM

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