What is good advice?
Is it cheap advice?
Is it easy to implement advice?
Is it advice that provides better options?
Is it advice that saves time or money?
Is it advice from a trusted friend?
Is it advice from an algorithm that assumes you aspire, behave and resemble the majority in your advice demographic?
Is it advice from an experienced, qualified adviser?
Is it advice from the weekend papers or a site like barefoot investor?
Is it advice from an employee of a bank, a nursing home, a union fund, an investment house, a social media influencer, or an ex-financial services executive now driving an uber?
It is a pertinent question as the latest review of Australia’s financial services sector likes “good advice”.
Treasury has sought the opinion of Allen’s lawyer Michelle Levy as to how to better regulate financial advice to improve accessibility and affordability of advice.
Her interim report released last week is appealing.
Her review seeks feedback on first draft proposals to address the excessive costs associated with delivering advice while ensuring “good advice” is provided.
She aims to remove the current dependency on laws that regulate and prescribe today’s advice inputs. She hopes to replace these by focusing on the quality of good advice.
Ms Levy is following a well-trod review path.
As far back as 1979, the Government asked LJ Hooker’s boss Keith Campbell to review the regulatory and controls guidelines to oversee the development of the financial services sector.
In 1997 Stan Wallis’ Inquiry proposed new financial regulatory structures creating ASIC and APRA to improve the disclosure and consumer protection laws regarding the distribution of a wide range of financial products.
In 2001, the Financial Services Reform Act established a licensing regime to govern financial services and altered the mandatory disclosure obligations for most retail financial products.
In 2009, Bernie Ripoll’s review to reform financial services produced 11 recommendations, including statutory fiduciary duties for advisers and recommended the establishment of standards to govern the advice industry.
Soon after Mr Ripoll’s review, Jeremy Cooper reviewed superannuation to make it simpler, safer and more efficient. His review forged, among other initiatives, the MySuper range of financial products to make Australians’ savings go further.
In March 2014, David Murray’s Future of Financial Advice reforms became law with promises of a ‘best interests’ duty, a mandatory two-year renewal obligation on most financial advice and a ban on conflicted remuneration structures. These and later amendments were required to protect the financial futures of Australians.
In 2015 it was time for a review into life insurance practices led by John Trowbridge. He reviewed the systemic misalignment between the incentives in the life insurance industry and their contribution to poor outcomes for the Australians these products were meant to serve.
It was a busy year for reviews in 2017 when the Ramsay Review produced 11 recommendations, including establishing a single external dispute resolution body for consumer financial disputes. In the same year, the Australian Bankers Association asked Stephen Sedgwick to review how best to re-construct remuneration and incentives to address a growing misalignment of sales-based incentives throughout the banks.
In 2019, Justice Kenneth Hayne produced 76 recommendations from his $70m Royal Commission, which damned the greed, self-interest and cultures of most of Australia’s banks, insurance groups and even some tiny independent advice providers.
Like a good show on Netflix, financial services inquiries have had a solid run of seasons.
While not trying to damn the hard work of many well-intentioned participants, a powerful paradigm remains at the heart of Australia’s world-class financial services sector.
The humming from the power in today’s financial services can be heard in the vaults of Australia’s most significant financial services institutions.
None of today’s power holders has made significant money from financial advice.
However, they have generated or captured billions annually by distributing financial products.
The difference matters as inquiry after inquiry continue to bow to the incumbent power bases.
Professor Steven Lukes of New York University defines power as securing someone’s compliance.
Lukes says this usually occurs in one of three ways. Firstly, is raw power.
Raw power is the conflict when someone’s will prevail over someone else’s.
The second type of Lukes’ power triad is the power to control an agenda.
Agenda-controlling power is when one party gets to control a debate or situation and thus ensure any progress will be in their self-interest and favour. This is to the detriment of others in the debate not as able to frame or advance the agenda.
Lukes’ third dimension of power is the most interesting.
His third type of power is buy-in.
Buy-in power is so pervasive that those subjected to it buy into the existing power relationships accepting it as the norm, the natural approach, acting compliantly as just the way things work.
The forces of today’s buy-in power in financial services mean Australians seeking trusted advice cannot package or distinguish a financial advice offering separately from a financial product offering.
Inquiries that fail to crack the product cement binding the industry’s foundational paradigms that promote financial advice as another product are guaranteeing many more seasons of financial inquiries.
I’ve written previously of a possible model here, which will be the basis of my response to Ms Levy’s interim report.
The institutional financial giants, the media who report or work for them, the regulators, politicians and advice industry associations are not pernicious. They have ‘bought in’ to today’s working paradigms of our financial services industry.
They understandably view Australians as trustees, superannuants, investors, pension-holders, pre or post-retirees, mortgagees, or taxpayers.
The authentic Australian advice-seeker becomes clearer without the ‘buy-in’ of how it has always been done.
They are the Mums and Dads (Dads and Dads or Mums and Mums) acting increasingly as the bank of first resort for their growing families whom they have many more reasons to worry about getting them established than their parents had to worry about.
They are small business owners wondering how they will pay taxes, find and reward employees, handle new costs, and manage new marketplaces that disregard past working models while hoping to pay themselves and find a simpler, more controllable life.
They are the millennials who wonder about their best financial steps re-thinking the status of property ownership in a new world not built on today’s energy outputs, welfare assumptions or climate as the world of their parents, employers or teachers were.
They are the aged, scared about a potential loss of dignity, respect and choice as health narrows their options and healthcare becomes a daily taxation.
They are young couples straddling debt, child care, education hopes in double-income, high expectation, low-cashflow households.
Our futures will crave valuable advice for the situations, circumstances and behaviours involving our real and sometimes frightening life complexities.
The financial product advice narrative does not improve these complexities.
In fact, it is adding to the complexities in life, not reducing them.
Today’s powerful ‘buy-in’ narrative regarding financial advice needs deflating.
The payment and packaging for real financial advice must be separated from the payment and packaging for financial products.
This is far more than a debate about a new approach.
It is the debate about every Australian’s financial future.
What do you reckon good advice is?
Photo credit: www.pexels.com Anna Tarazevich (5697250)
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His consulting firm, Certainty Advice Group, coaches and trains advisory teams delivering comprehensive and unconflicted advice. He is growing a strong and collaborative community of advisory firms aligned on Australia’s only Certification Mark advice standard for comprehensive, unconflicted advice – Certainty Advice. He has authored four books regarding financial advice, with his latest – What Price Value – available now since release in March 2022.
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