The royal commission inquiry into misconduct in the financial services industry is different from other inquiries the industry has been through and addressing the issues it has exposed will require a different response from the industry.
Madison Financial Group chief executive officer Annick Donat says that for the first time the results of bad advice and poor practices have been given a human face, and a human problem demands a human response.
She says the industry has traditionally addressed its perceived shortcomings through a product lens. But “solutions” that have been proven not to work in the past won’t address those issues in future.
“Every response we’ve had since the royal commission has been a product-led discussion, with CEOs coming out and [saying] it’s going to affect my bottom line by this much,” Donat says.
“Do you think any Australian cares? So my first point is it’s a human problem and we need a human response.”
The human cost of advice failures has been laid bare for the world to see, and Donat says each licensee will find its own way of helping advisers to respond. She says success for Madison and its advisers will rest on three pillars: encouraging advisers to self-govern; encouraging advisers, licensees and clients to share responsibility for clients’ financial affairs; and finding ways to provide clients with access to advice how and when they need it.
Madison’s ‘human response’ to restoring trust in advice
Pillar one: Self-governance
Advice communities – advisers and licensees – self-govern to create structures and to encourage practices that improve the quality of advice and the profitability of advice firms. Licensees support advice businesses to create effective communities of practice, supported and enabled by the best fintech and regtech solutions.
Pillar two: Co-responsibility
Clients become partners in advice – they seek and take good advice from appropriate qualified and professional advisers but take some responsibility for their own financial affairs.
Pillar three: Access to advice
Licensees support advice firms and advisers to deliver services that meet the client on the client’s terms – the right advice, on the right issues, at the right time. It may require advisers and licensees to deliver simple educational material and basic investment theory. Access to advice can happen through digital channels as well as human interactions.
Donat says the industry needs work in new ways under existing regulation, rather than being regulated more, or regulated differently.
“I don’t think there’s anything wrong with our current regulation,” she says.
“I think our interpretation of it is wrong, but I don’t think there’s anything wrong with it. So for me I think, how do we self-govern?
“I know what my obligations are as a licensee, I know what information I need to have, I know I need to be across the regulation.
“But how, as a licensee head do I self-govern my business as a licensee, but also support our practices and our business owners to self-govern? That’s about having a clear framework that aligns to the laws of the day, but also supports those businesses to do that.”
Self-governing advice communities
Donat says this idea has been expressed within Madison through the creation of a working group for the licensee’s sole practitioners. After an initial meeting of advisers and practice owners she says the group became essentially self-governing. Its members have co-operated to access shared services to support business growth, and they’re developing locum services, so advisers can take a break from their business every now and then and be confident their clients are still being looked after.
Donat says extra layers of management and creating a bureaucracy is not helpful and “more checkboxes are not the solution”.
“We need to get to the cause,” she says.
“Because there’s so much regulation we need to rethink it. People talk about technology and regtech in particular. When you think about what’s going on around the world, there are systems and processes through regtech and AI that are currently working or under development. The problem is we have a bunch of leaders saying it’s never going to solve the problem; but no one is trying to look at the problem a different way.
“In our group we’re doing a lot of piloting systems and processes and looking at parallel industries and how they’ve used regtech to help drive self-governance. I’m not trying to change the rules, I’m trying to adhere to the rules in the most efficient way.”
Clients and advisers and taking co-responsibility
Donat says the advice industry has encouraged clients to outsource decision making and responsibility to advisers. But it’s ultimately the client’s money, the client’s future and the client’s family wellbeing that’s at stake.
“We’ve disempowered people, which is wrong,” she says.
“When you’re talking about peace of mind and just life in general, you can’t have the life you want if you don’t take responsibility for it as well. You can bring in all the experts you like, and you can spend time finding out information from others, but in a society where information is really easy to access, and education is really easy to access…where are we creating an environment where people are co-responsible for this situation?”
Asking people to take co-responsibility for their financial affairs works if they know when and how to seek advice in the first place, and just like in other industries, consumer choice will be paramount.
“If you think about how retail works, you can shop online, you can choose to have it sent to your house and in some circumstances you can choose to walk into the store and pick it up, but you have options,” she says.
“We need to think about what access to advice looks like. The first [stage] might just be education. Human problem, human response.”
Donat says developing different access points for advice is a work in progress for Madison.
“We’re learning by doing,” she says.
“What I want to be able to do is test a few different things. When we run an education strategy, what happens next? It’s probably a series of ‘human experiments’ and seeing what lands.
“I think access to advice has to be storytelling first, and then human experiments. And it will be a blend of digital and human experience.
“What I really care about is, are the people that need advice getting advice? And if they don’t need it now, do they know how to get it when they do?”