OPINION PIECE - by Zach Castles, Policy Manager – Advice
Economic historians might one day conclude that it was not the Royal Commission that upended Australia’s financial advice industry, but instead a contagious and deadly virus that after sweeping the globe threatening health systems, shutting borders and with it the global economy, triggered a transformation of financial advice to become more innovative and responsive than ever.
In Australia, COVID-19 has seen a surge in people seeking advice about their pension, early access to superannuation, life insurance policies, redundancy, and the impact of a possible recession on retirement plans and savings. Thankfully, their needs are being met by advisers working harder than ever from their dining room tables.
The Government’s stimulus package and changes to superannuation will inevitably add to the short-term demand for advice but in the long-term this period will shape the structure and innovations of a different industry participating in a different economy that emerges.
As the population ages or falls into financial hardship, more and more Australians uncertain about their livelihoods and future will access their super or at the least engage with their finances. Even before the pandemic took hold around 80 per cent of Australians were earning around $80,000 or under, and more than two and a half million people were purchasing financial advice.
There is no shortage of evidence on the benefits of financial advice for our mental health and well-being. Research from a survey by Fidelity International shows that of those surveyed, 49 per cent rated the non-financial aspect of their life that had benefitted most from financial advice was their mental health and wellbeing, before family life and work satisfaction.
Nowhere has the need to secure the mental health of Australians been more pronounced than in the wake of the pandemic. The risk of people making uninformed financial decisions on a whim in times of distress has probably never been greater. Like visiting the doctor or a personal trainer, financial advisers support us to make the right decisions - it is the business of financially proofing your future.
This crisis will be formative for that business, and the thousands of financial advisers and product providers who devote their careers to transforming the decision-making and the prospects of their clients.
However there has been limited articulation of what an advice industry of the future looks like. The 2018 Royal Commission and the Future of Financial Advice reforms almost a decade ago generated plenty of focus on what financial advice can’t be. In a post-COVID-19 world we need a discussion on what it can be.
Constant legislation and persistent regulation will not achieve an affordable and accessible advice industry, instead ideas and initiative that spur cultural change will.
It is no surprise that as the regulatory pile-on grows and the cost to provide advice increases, so too is the number of advisers departing the industry. Rainmaker analysis released in April this year showed nearly 500 financial advisers dropped off the Financial Advisers Register between February and April. This situation is no doubt deterring a generation of new advisers graduating from universities with commercial and financially-relevant qualifications that will find it too costly to enter the market.
The question now is whether much of our fairly aged financial advice regulation, and indeed financial services regulation, is fit for purpose in a post-COVID world. In this sector and others, a lot of our activities will have to be much simpler and more agile.
We should be strengthening the social license of financial advice, unleashing its true potential and reducing red tape and confusion for consumers and advice businesses.
The FSC has a solid track record in shaping the discussion on financial advice. In the aftermath of the Global Financial Crisis we commissioned research that showed people who receive financial advice will be almost $100,000 better off at retirement, simply through learning better savings behaviour.
A much broader discussion on financial advice is now needed and the solutions it offers our economy. The FSC report on the Future of Advice will be released later this year and will contribute to the discussion as Australia and the world move towards economic recovery.