The rate and pace of regulatory change that may be forced upon the financial planning industry from the royal commission could undermine the drive to improve the accessibility and affordability of advice.
Australian Unity executive general manager of advice Matthew Brown says more regulation means the complexity of providing advice will continue to increase, driving up the cost, and even though the royal commission has focused on worthwhile issues it might not even address the underlying issues that stop more people seeking advice.
“What I’m frustrated about is that those are important issues we need to talk about and things we need to resolve. Things like licensing ownership structures and whether a product manufacturer ought to play role in the collection of an advice fee from a client and passing it to an adviser are important and they need to be dealt with; yet there are root causes that underpin some of those actual and perceived problems that are not being discussed and addressed.
“One of them is typically clients are not prepared to pay an adviser what it costs to deliver advice; and secondly, many advisers typically aren’t willing to pay a licensee what it costs to license. Unless you address those matters then subsidy models, and any other actual and perceived conflicts, are exacerbated.”
To address those issues, Brown says, “the traditional business models…of licensees and advisers need to evolve, and evolve quickly, and getting that distinction between evolution and revolution is going to be an interesting one, and a decision for each business owner”.
Brown says that despite the degree of discussion and public controversy surrounding the royal commission, most of the issues it has exposed are unsurprising, although the depth and extent has “shocked us all”.
Interests of shareholders versus customers
Among those issues are the problems that arise when profit is put ahead of the rights and interest of consumers. It’s not an issue likely to affect Australian Unity, a mutual organisation that is owned by its members, who typically also are its customers.
It is a structure that has served its members for 175 years and counting. A profit-for-members approach (not unlike an industry super fund) gives the business “a longer-term view of returns” than next quarter’s or next year’s profit result, Brown says.
“It’s a large institution, broad-based, well-resourced and with many moving parts,” he says.
“But being a mutual enables an approach to capital that is a bit more patient than others.
“The way it sees its role in helping as many people as possible with their health, wealth and wellbeing, and being a mutual structure whereby we take a longer-term view and attribute value to our contribution to community and members as much as clients and profitable outcomes, means we’ve got a real point of difference in terms of the basis, the foundations, on which you build a business.”
Now about six weeks into the Australian Unity job, after a period leading ANZ-owned licensees, Brown is taking stock of an advice network that consists of 30 employed and salaried advisers, a larger group of self-employed advisers and a cohort of advisers with limited authority.
“We believe in the delivery of advice, so we’re in it,” Brown says of Australian Unity’s salaried advice force.
“We will look over the coming weeks, months, years to grow that capability because one, we believe in advice; and two, we recognise there is still strong, sustainable, economic profit in the delivery of good advice – owning the advice.”
The organisation’s salaried advisers sit alongside about 135 self-employed advisers operating under its licence, and a further 35 advisers, mostly accountants, operating with limited authority.
Brown says the future of financial advice is “exceptionally bright” and will adapt to demand from consumers requiring guidance to negotiate increasingly complex financial decisions.
“Advice will start to be recognised in its different formats,” he says, and “the emergence and the clarity” of how advice is “embedded into things like product design and service design” will broaden its appeal, affordability and accessibility.
Better engagement, greater value
But Brown says engaging consumers remains something the industry still needs to do better before people will take up advice in significantly greater numbers. Technology will undoubtedly play its part, but advice remains, fundamentally, a person-to-person proposition. He says the industry has to articulate the value of advice differently from how it’s done it to date, for the simple reason that “what we’ve tried over the past…maybe decade and a half to two decades hasn’t worked”.
“We need to contemporise the way we speak to Australians about what the value of advice is,” Brown says.
“I’m formulating my views on it, and this may sound odd, but one thing to look at and explore is how we get psychology back into the industry. By that I mean, can we understand how people think better and represent complex concepts, and financial concepts at that, in a way that resonates and talks to people?”