Placing the consumer at the centre of the financial services universe will ensure the provision of advice is affordable and stop the industry from shrinking, according to Connect Financial Service Brokers.
Paul Tynan, chief executive of the financial services merger consultancy firm, said two decades of regulatory change had meant the Australian financial services sector had reached a precipice and desperately needed a new way of thinking about reform.
To avoid a further decline in advisers and to provide consumers with more affordable advice, financial advice needed to “move down the path of removing power away from super funds, lawyers, institutions and putting it the hands of the consumer”.
Tynan suggested an advice model comprising three levels:
- Consumer information that was non-specific and did not focus on products.
- Proprietary advice focused on product and service, including superannuation, robo-advice, life insurance, finance, etc
- Personal advice, including holistic independent advice that was not product focused.
“While they share similarities, they differ in the types of service they offer and the remuneration rates at which they offer them,” he said.
“Proprietary and personal advice operate on the principals that the adviser has a fiduciary duty to act in the best interest of the client.”
Tynan said his suggested advice framework would be focused on scalability and adapting to technology.
“In Australia we need to improve the accessibility and affordability of financial advice, and this can only be achieved by increasing the scalability through the new advice framework and cutting the over regulation of the industry,” Tynan said.
“Scale is essential, and an immediate benefit will be the ability for advice practices to grow, streamline operational/administrative/compliance operations and activities; reduce costs and encourage new entrants to join the advice industry.
“Australia needs a 21st Century regulatory regime to oversee and guide the new framework of face-to-face advice underpinned by advances in technology.”
He also said the advice industry needed to better engage with consumers through digital media platforms and that financial literacy courses should be made compulsory for standings in years 10 to 12.
“The solution is simple…the sooner politicians adopt a bi-partisan approach and vocal lobby groups put self-interest aside, the sooner all stakeholders will find the courage and wisdom to restructure financial services with purpose, for growth and success,” Tynan said.
Tynan’s framework recommended:
- The Government commit to no retrospectivity in legalisation, regulations, or education;
- Advice be moved out of the Corporation Act;
- Higher education standards be introduced;
- The introduction of full advice fee disclosure where clients could opt out;
- The removal of Statements of Advice – “client communication should be clear, concise, and in an effective format the consumer can understand”;
- The industry move to an individual advice licencing regime;
- The advice profession be based on fiduciary duty to act in the best interest of the client; and
- Product advice and strategy advice be separated.