Sweeping Changes to the Financial Advice Industry

The Federal Government is about to announce the biggest shake-up to the Financial Advice Industry since changes imposed by the Hayne Royal Commission in 2019.

I want to say ‘here we go again’ … and sigh audibly. But the truth is, at this point, it’s difficult to know whether these changes are going to be good for the industry and for consumers, or problematic – I welcome your comments and feedback.

The general spirit of the changes is to bring more financial advisors back to the industry and to make financial advice more accessible.

Bringing wisdom and experience back to the industry

Many financial planners left in droves after the changes announced (and adopted) in the wake of the Royal Commission. One of the major sticking points amongst the raft of changes was the need for financial advisors to have a tertiary qualification. This put enormous pressure on people who had years of experience (which you just can’t replace by textbook learning) as well as clean regulatory records – and so, they decided to call it a day.

As a result of many advisors leaving the industry – about 10,000 if the numbers are correct – the cost of financial advice has increased. According to recently published figures the cost has increased by as much as 41 per cent between 2018 and 2021. By any standards, that’s hefty.

And as a result, many people now simply can’t afford financial advice, and at a time when it is so crucial. We’ve had a pandemic, and currently we’re experiencing a considerable time of global economic uncertainty – now, more than ever, people need to understand prudent money management so they’re prepared for whatever may come our way.

The considerable cost of ‘financial influencers’

The past few years, all of these things combined have given rise to the ‘Fininfluencers’ on YouTube and Instagram and Facebook etc – my views on this are pretty well known. And while I might have thought the best way to crack down on this (often) crackpot advice is to highly regulate these online sources, the Federal Government is taking a different tack.

It is, instead, aiming to encourage knowledgeable, experienced and reputable financial advisors to stay in the industry, and as such, will be scrapping the need for a tertiary qualification.

Further, the Government intends to ‘streamline the process of giving financial advice through the channels that already exist’ . This is intended to make financial advice easier to access.

However, this also opens the way for banks and super funds to provide “advice”, which raises questions around how the Government intends to deal with issues around transparency, particularly of fees and commissions, as well as the independence of advice and what the “best interests of the client’ really means – all of which were major problems exposed by the Hayne Royal Commission.

Due care needs to be taken to ensure that we don’t wind back the consumer protections that are in place.

A lot of this particular change, as far as I can tell, is driven by the tight laws currently in place which superfunds say prohibit them from having open conversations with members as they approach retirement, about how to best utilise their super.

More education is needed

But it could also be argued that many Australians, of all ages, just don’t really understand super, and there needs to be a much better focus on, and approach to, education around super over all – not just at retirement, but decades ahead of that so young people know what they’re achieving through super and how best to manage it over time so it serves them well in retirement.

The continual changing of rules and regulations, around super, around financial advice, around the financial services industry in general is well-intended, but in my view the constant “chopping and changing” does nothing to instill money management confidence in ordinary Australians.

Typically, those who can afford it, will seek financial advice. Those who can’t will wing it – often to their detriment – because finances can be complicated in Australia, mostly because our tax

laws are inherently complex.

And while I might sound like I’m doing myself out of a job here, my goal is to empower people to take control – of their businesses, their finances, their futures. I’m here to help, but I’m also here to let go of the bike when you’re able to ride.

In my view, a good financial planner will get a client set up with a strategy, and then there’s only an annual requirement to “check in”, unless a client has experienced a major life change, or intends to make a major life change and needs to access funds to do so, or there are other opportunities to consider.

A financial planner needs to be one to encourage, and inspire, a client to take an interest in their personal finances beyond paying the bills and saving for a rainy day, and be there to provide guidance along the way.

Digital advice

Financial advice should be, in theory, a bit like going to the dentist. A 6-monthly checkup is ideal, but annually will be ok so long as your finances are healthy, unless there’s an issue.

And I’m not particularly a fan of the idea of “digital advice” although I am one to embrace technology. I’m not necessarily convinced that ‘digital advice’ can deliver the individual, tailored,

personal advice that I believe is necessary around investment and retirement strategies, and I’m also concerned that you can’t programme ethics into a computer. That said, I’m prepared to be

challenged on its pros and cons.

We have an aging population in Australia and we need to ensure that this group is well supported. Those retiring now, or in a few short years are really the first real test of Paul Keating’s vision of “self-funded retirement” and let’s be real – many took a hit on their super during the GFC, and some are rightly concerned about how to secure funds in the coming years as the economy changes. This group, above all, needs priority attention and assistance as we navigate any new changes to the system overall.

Enough from me. Tell me what you think. I’d love to have a robust debate about this – give me a call, DM me, send me an email, or post in the comments below.

Let’s have a conversation and put all ideas and opinions on the table. I’m listening.