What I learnt about financial advice, FoFA, and best interests from toll roads…

On Wednesday night a couple of weeks ago the latest round in the Future of Financial Advice (FoFA) saga limped through parliament heading for who knows where. Due successful lobbying by financial institutions, plus noise from incumbent industry associations and funds, Australian politicians continue to demonstrate a fundamental misunderstanding of our future financial advice market.

Despite original intent, the FoFA legislation is less about providing Australians with financial advice and more about flogging financial products. To illustrate, think about toll roads for a moment…

Consider the major financial services suppliers (i.e. Westpac, AMP, National Australia Bank, Industry Funds, ANZ, CBA, Macquarie et al) as toll road suppliers (Macquarie already understands the similarities!). 

Using this analogy, the majority of Australians with money in their superannuation, investment funds or bank accounts are knowingly, or potentially unknowingly,  using the ‘toll roads’ from these financial providers every day. These ‘roads’ have many descriptions including wrap accounts, separately managed accounts, investment platforms, loans, leases, individually managed accounts, master funds among other descriptions. Essentially any financial product which takes an on-going ‘clip’ from balance of monies could be compared to the continual ‘beep’ we hear when we ride on the real tollways.

Continuing the analogy, consider AMP.

AMP not only provides the ‘toll road’ (i.e. investment platforms are on example), but they also provide and charge for the ‘vehicles’ to convey Australians along these ‘toll roads’. AMP own their own network of advisers through AMP Financial Planning. They also own other advisers networks such as Hillross, Genesys, AXA Financial Planning, Charter Financial Planning, and IPAC. With the majority of today’s ‘financial advisers’ aligned to these financial giants, it’s obvious these institutionally-owned or aligned ‘advisers’ would recommend and prefer the understood, well-known, and compliant ‘toll roads’ of their financial partners.

Misunderstanding Financial Advice…

Herein is one of the fundamental misunderstandings of Australia’s financial advice marketplace and Senator Cormann’s FoFA.

The majority of financial advice today presumes the consumer always needs a ‘financial toll road’ and usually the one supplied by the ‘aligned’ financial partner.

The reality is that this isn’t always the case.

Real toll roads for most Australians are a more expensive and usually more effective ‘means to an end’ when travelling by car.

However, on real road systems, there are alternatives to toll roads – not always on today’s financial ‘road’ systems.

Also, sometimes the most valuable advice in the ‘best interests’ of consumers could be not to travel at all. Just stay put.

Or it could be take a plane, train, or simply walk – all options avoiding all toll roads.

It’s also possible that the best advice in the ‘best interests’ of consumers could be taking a toll road provided by a competitor.

But that’s not how today’s financial advice market has been constructed by the financial giants building ever-bigger financial toll roads.

In fact, most Australians are so apathetic towards their financial lives, ignoring their far-off retirements or the details on their financial statements that they could be completely oblivious that their financial life has been stuck on a huge financial round-about for years with every revolution to no-where costing them more and more money.

Financial Best Interests?

Whose ‘best interests’ are being served?

Today’s extensive and well-developed financial ‘advice’ industry is serving itself very well and Australians are about to get more legislation with FoFA that continues that status quo. Unlike real road systems where people generally know where they are going, Australians have a financial advice industry that isn’t rewarded to genuinely help with the certainty about which is the best path forward (if it in fact even requires road travel) because the current industry is only concerned about consumers ‘being on their toll roads’ rather than actually getting somewhere.

Again, whose ‘best interests’ are being served Senator Cormann?

There is no doubt that today’s financial toll roads are here to stay and they do have an important role to play.

I believe that consumers don’t value the toll roads they might take anywhere near as much as their desired destinations.

I don’t believe the government’s current FoFA legislation does anything to address this.

The thinking behind the current legislation supports the old approach to building more toll roads which is coincidentally just want the incumbent financial giants seek but not what consumers desire.

I reckon the government’s FoFA legislation is treating Australians as mugs.

What do you reckon?

Photo credit: ©iStock.com/ollo


About Jim Stackpool

For nearly 30 years Jim has influenced, coached, and consulted to advisory firms across Australia. As founder of Certainty Advice Group, he leads a like-minded team of professional advisory firms seeking to create greater certainty for their clients. As an author, blogger, columnist, and keynote speaker, Jim is regularly called upon for his professional insights into the advice industry. His latest book Seeking Certainty is available now.

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