A Disastrous 2020?

The 11th March 2011 Fukushima nuclear disaster caused by the Tohoku earthquake was the worst nuclear accident since Chernobyl in 1986.

However, while no deaths are due radiation exposure from the disaster itself, new research suggests that more people suffered and perished as a consequence of the catastrophe, primarily due to the immediate shut down of 30% of Japan’s power sources and the frightening social upheaval caused by such a massive evacuation.

It seems the consequences of disasters can be worse than the tragedy itself.

Any recent disasters in financial services?

Yes, 2019 continues to be a shocker for the industry.

But the consequences of 2019 could produce an even worse 2020.


A tough 2019

Early February, the final report of the Royal Commission into Misconduct of Financial Services was delivered. Ironically, the share market had its best session in ten years the very next day when the threatened banning of vertical integration didn’t materialise hinting of better outcomes for the banks, their shareholders and workforce.

However, in retrospect, the banks and financial institutions might have wished it did. The narratives and experts the Royal Commission ignited were blossoming the very next day when the Chairman and CEO of NAB announced their resignations with a “we are deeply sorry for this”.

The confirmation that financial product commission payments to financial planners were going to be banned (i.e. grandfathering – still the only recommendation legislated) forced the exit for some advisers even though the signs were clear six years ago.

Anyone aligned or working within the ‘wealth’ divisions of our banks, investment, insurance and large financial advisory groups haven’t been sure if they are potentially part of the post-Hayne renovations or going down with the demolition.

Further confusion was early reports from banks saying they were abandoning their loss-making wealth divisions only for others to announce later they always intended to continue offer wealth in some form. Meanwhile, cases needing possible compensation keep sprouting like weeds.

Even those who significantly missed the Commissioners and regulators attention – industry superannuation funds – are facing challenges of their success while warning some retirement fundamentals need further enquiries.

But the pervasive unseen issue for advisers deep beneath the headlines of 2019 has been regulatory uncertainty.

Every financial plan for every advisory client for every Australian adviser has been affected. Regardless of business model, regardless of license, regardless of experience, every adviser is uncertain as to what is the interpretation of client’s ‘best interests’, or ‘conflict of interest’ or definitions of a compliance breach.

While there have been suggestions that over half of an adviser’s revenue is at risk, the reality is that every adviser practising in Australia has more paper-work, more nervous energy, and more uncertainty about the regulatory frameworks used to build their day-to-day operations upon.

A case in point is the distraction, energy and focus that the forthcoming third sitting of FASEA’s “The Financial Adviser” Exam to re-prove credentials to the new regulatory authority.

Unfortunately, the uncertainty won’t stop with a ‘pass’ mark.


Hoping for the best?

My mother grew up hearing her grazier grandfather’s mantra – hope for the best but plan for the worst. Those advisers looking beyond their next FASEA exam results, which the majority will surely pass, might consider my great-grandfather’s advice in 2020.

So, assume Standard Three of the new Code of Ethics means advisers can no longer charge fees on assets under management. What’s the alternative plan?

Or assume advisers can’t take any fees, or build an asset platform for potential future sale, using a white-labelled managed account or ETF-platform recommended to clients?

What will advisers do if unable to extract advice fees from client’s superannuation fund and clients must pay from bank or platform cash accounts?

How will advisers maintain revenues with no ‘on-going’ payments?

If on-going payments are phased out, what will happen to advisory firm valuations?

After considering the possible regulatory consequences of 2019, ponder what will be the outcome as Google, Facebook, Amazon and Apple use their client’s spending data to not only predict their next purchase, loan, budget blow-out or asset allocation but provide tailored ‘advice and product’ solutions?

Are you ready?

No one is.

Hoping 2020 will improve by itself?




The product-based advice industry has a rising imbalance.

The instability is both cultural and philosophic, between two separate modes both essential aspects of the industry — products on one side and advice on the other.

The dominate rationale is still that financial products and advice are the same.

Unfortunately, too much value has been placed on accessing the best performing, the most ethical or the “no-fees” financial products. No wonder Australians don’t value or seek financial advice when engagement models built for a compliant product purchase prevail over engagement models built to authentically engage clients as individuals. This continues the product or technical based myth that value is what the adviser provides whereas value is what the client seeks.

While the majority of advisers did not become advisers to sell products or hours, the product or technical imbalance has produced the current status quo, which rewards advisers ultimately on products purchased or hours worked.

This has not worked.

Australian’s don’t trust financial advice despite having one of the world’s most successful pension schemes.

The value should be judged by clients, not by products.

Today’s imbalanced paradigms suggest what is intrinsically valuable and motivating to clients in their financial lives matters less than what is extrinsically comparable to alternative product or expert strategies.

The industry will fail to help more Australians lead better financial lives until it rebalances its motivation and rewards less on the means (i.e. specific product or expertise) needed to support better financial lives and more on the cause (i.e. client value, behaviours, hopes, and complexities) affecting better financial lives.

Every industry has a cycle, and the financial services industry is not different.

It will rebalance eventually with higher weighting on the value of advice.

2019 was a tough year for the industry.

As tragedies like Fukushima shows, there will be unintended consequences in 2020 and beyond for all advisers. These will make it particularly hard for advisers feeling victimised by regulatory disruption, falling consumer sentiment and ongoing technology disruptions.

But 2020 is also the best of times to provide the certainty and value clients desire with less value attached to specific product or technical expertise.

The objective is to help clients lead better lives, don’t play small in 2020.

Bring it on.

What do you reckon?

Photo credit: ShutterStock_57108277



For 30 years Jim has influenced, coached, and consulted to accounting & financial advisory firms across Australia. His firm, Certainty Advice Group consults to accounting & advisory firms who separate financial advice from products. He has created Australia’s highest and only ACCC/IP Australia Certification Mark standard of comprehensive advice – Certainty Advice. He is also an author, blogger, and keynote speaker covering topics on his expertise – building advisory firms and pricing purely on transparent client value.

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