It might be the year all of us wish to forget, but the consequences of COVID-19 have been defining moments for many – and for advice, 2021 is the year in which the industry charts a new course.
No-one could have predicted the explosion in demand for scaled and simple advice. Nor could they have foreseen attempts to rewire the compliance net in a tech-neutral manner for a working from home world – as advisers turned spare rooms into offices, connecting with clients online and over the phone. A reality acknowledged in the relief granted by regulators on activities such as electronic renewals for ongoing fee arrangements, which the FSC advocated for.
This year was a new beginning for the value of financial advice to both individuals and the economy. Assuming a greater provision of advice generates a 1 per cent uplift in the investment earnings of Australians. Rice Warner’s modelling shows national savings in Australia would increase by approximately $2 trillion over 30 years – an uplift equal to approximately 49 per cent of projected GDP. On the same modelling, expenditure on the Age Pension would fall 13 per cent up to 2049. The role of advice in helping Australians develop sustainable retirement strategies was further underlined in the Retirement Income Review this month.
This value may be ignored without a focused policy debate on advice that results in regulation that can sustain an industry undergoing constant change.
The FSC has begun developing its Green Paper as it leads a new policy debate on financial advice. It will include proposals for the advice value chain over the long-term. The FSC is methodically consulting right across the advice industry and internally with members. We want to identify areas of alignment as well as pressure points.
There is no shortage of dissenting views on advice. There is however unanimous agreement that the cost of providing financial advice is too high and must come down – a message made clear at last month’s Future of Advice Summit. We’ve already had a lot of feedback: industry wants simpler documentation, clearer guidelines, regulation that’s easily understood, consistently applied and cost-effective.
This work is taking place while industry responds to a torrent of consultations from regulators over the Christmas period. One on scaled and personal advice, as well as digital advice, means a substantial amount of consultation. Significant as it is, its scope relates only to the use of the existing regulatory net which is simply is not working, and ultimately depriving consumers of advice.
While the relief this year seen from regulators was essential in supporting advice business to operate, and consumers to engage – industry is treading water. The role of regulators is limited. The long-term implications of the Royal Commission legislation remain uncertain. Advisers continue to leave the sector, and advice businesses have been subject to near constant restructuring in the past year.
The core institutions that will structure the advice industry, such as a single disciplinary body, remain an unknown. So too does the challenge of balancing a digital shift in advice that reduces costs and inefficiency, with rules dictating that advice businesses maintain regular contact with their clients. These are all areas to be explored and for which the FSC’s members will contribute detailed solutions in the coming year.
OPINION PIECE - by Zach Castles, Policy Manager – Advice
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