The release of ASIC’s Report 627 Financial advice: What consumers really think, highlighted that among Australians who have received professional financial advice, 89% intend to get advice again in the future.
The report also revealed that almost four times as many Australians who received advice in the past 12 months had a ‘great deal of trust’ in their advisers compared to those people who had not received advice recently.
It was a resounding endorsement for the advice industry but one that is not reflected in the level of support it is currently receiving from the Federal government, which is standing by while the Australian financial advice industry is experiencing death by a thousand cuts.
The other very important piece of information that Australian consumers provided in this research was that the main reason they did not obtain advice was that it was too expensive.
And yet the industry is about to have a reform agenda thrust upon it that will greatly increase costs to the consumer.
The ASIC report also highlighted that advised consumers are more engaged with their financial affairs, have higher incomes and levels of education. If their interaction with advisers has improved their financial behaviour, then that is another reason to seek advice.
Either way, the government should be looking at ways to get more people into advice rather than increasing the barriers such as cost and creating trust issues by blaming advisers for things that are out of their control, such as product failures.
In the absence of strong government leadership, the mainstream media has filled the vacuum and been allowed to drive the narrative on this issue.
During the Royal Commission, the mainstream media focused on the horror stories that mostly came out of the wealth management arms of the large institutions without making the distinction between that model and the non-institution aligned financial planning model.
The ASIC report indicated that there was significant mistrust of financial advisers, but that it was mainly prevalent among people who had never received financial advice.
The only conclusion that can be reached from this is that those people who don’t trust advisers have formed that opinion from statements made by politicians and sensationalist mainstream media coverage. Actual recipients of advice remain overwhelmingly positive about their experiences with advisers.
This has had the effect of vilifying all 30,000 financial advisers in the industry when the over- whelming majority of them always act in the best interests of their clients to improve their financial circumstances.
This would indicate that the government has dropped the ball on this issue and our elected officials need to develop a better understanding of our industry before they destroy it, to the detriment of all Australian consumers.
My belief is that the negative perception of financial advisers can also be attributed to lack of understanding. As the ASIC report acknowledged: “Even limited knowledge of recent reforms (e.g. the Future of Financial Advice (FOFA) reforms or the professional standards re- forms for financial advisers) appeared to improve perceptions of the financial advice industry”.
To its detriment, the industry did not speak up in its own defence in the wake of the Royal Commission.
For example, planners themselves have no control over product failures but this fact was never part of the public debate.
The government has agreed to act on the recommendations of the Royal Commission, which were essentially motivated by public pressure to rectify the dysfunctional situations in the large financial institutions. But around half of the advisers not aligned with institutions ended up as collateral damage and by the time all the advice arms of the institutions are closed down or reduced in size, it will be many more.
These small business people, who invested their own savings to build a business, and al- most all of whom followed the rules to the letter, are suddenly looking down the barrel of a significant and permanent loss of income.
The recently announced legislation to remove trailing commissions from the industry has not given due weighting to the fact that commissions act as a vital funding mechanism for Australians who cannot afford to pay high fees to access financial advice.
In addition to a loss of commissions, increasing compliance, education and licensing costs are also cutting into advisers’ bottom lines, with some saying that revenues will fall by 30%. Most of these costs will have to be passed on to clients.
This upheaval is forcing many advisers out of the industry. Almost 3,000 advisers, around 10% left the industry in the first half of 2019 alone.
For those that remain, the stress is having a terrible impact. It is at the point where a few licensees actually have some of their financial advisers on a suicide watch list.
Furthermore, advisers who have successfully served their clients for 30 years or more have been told that they have to become degree qualified. Thankfully, the deadlines for completion were extended last week as a small concession.
All of this has advisers wondering what’s lying in wait for them around the next bend.
As Julie Bishop said in her address at the Association of Financial Advisers National Conference: “It’s so important that politicians and regulators understand the impact of legislation”. The Royal Commission certainly failed to recognise unintended consequences for the industry by focusing its efforts on stamping out misconduct and ignoring all other factors. The government owes it to the public to look at the broader effects of these reforms. ASIC’s Report 627 provided vital information in this regard that it would be negligent to ignore, as it highlights the fact that consumers are better off with financial advisers. We need a reform agenda that enables more Australians to seek advice, not less.
