Royal Commission a shot in the arm for the "real" Financial Advice industry
As we now draw to the close of another bruising round of hearings for the financial advice industry at the Royal Commission, it has occurred to me how positive the Royal Commission will be for a small but growing part of the financial advice industry. What the Royal Commission has exposed, particularly recently with the grilling the CEOs of the major financial institutions, is how difficult it is to deliver quality, independent, and profitable financial advice.
The major financial institutions have been exposed by their practices of delivering mass produced, boiler plate advice dressed up as personalised financial advice. One of their key drivers for this practice has been profitability. However, the profitability driver was not in relation to financial advice but rather their funds management businesses. The vertical integration model grew because the funds management arms within the large financial institutions needed distribution teams (ie financial advisers), so as to continue to support their significant margins.
The tension between looking after shareholder’s and client’s interests is particularly apparent when you look at the large institutions history of delivering of financial advice within their wealth divisions. Quite simply you can’t deliver personalised, bespoke, and unconflicted financial advice, and generate margins that close to those delivered by the fund managers. Investing money is an important part of what financial advisers deliver but the vertical integration model has shown the challenges of giving away one piece of the service proposition for free. With financial institutions hitting the eject button and exiting their financial advice businesses courtesy of the Royal Commission, this will highlight the true cost of delivering quality, independent financial advice.
It is difficult to deliver quality, personalised and highly profitable financial advice. This is what the Royal Commission has highlighted, and for consumers this is timely reminder of the important phrase in business: “you get what you pay for”. Consumers who value advice that is personalised, unconflicted, and delivered by someone they trust and respect, must face the reality that this type of financial advice is not cheap.
However, if you sit back and reflect on what the Royal Commission has exposed by way of cheap (sometimes “free”) financial advice, you really need to think carefully as to what you value when it comes to financial advice for you and your family.
Financial Planner to Professional Families and Pre-Retirees at Bounce Financial, Podcast Host of Money Chats with Bounce Financial
6 年Love this article! I’m hopeful that once the true cost of advice is shown, there will be more interest in bringing advice costs down. I would love to see an industry where licensing costs are sensible
The winners will be industry funds that augment their member offering to deliver better retirement outcomes with digital advice and guidance services.
I agree with your analysis but disagree with the assumption the outcome will be an automatic shot in the arm for IFAs. The RC is just one component of a larger disruption going on. IFAs who think Australians will continue to pay them big $ because “It is difficult to deliver quality, personalised and highly profitable financial advice” are in for a rude awakening. Advisers have to work smarter and improve both the customer experience and their operational efficiency. Customers are being provided more for less in almost every other service industry. Financial Advisers have to catch up.
FAAA Director | Leading Retirement Planning | Disability Insurance Claims Expert | Private Family Wealth | Complex Health Retirement Planning
6 年The entire thing will accelerate investment in robo advice and scaled advice.
Partner at Minchin Moore Private Wealth Advisers
6 年Kris interested in your thoughts on what AMP will look like in 2-3 years time?