Nathan Jacobsen, Managing Director, Paragem comments on the licensee’s role in the future landscape of advice in Australia
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What does ‘more affordable financial advice’ mean to you? And how can it be achieved?
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To me this means an Australian society that is getting the financial advice it needs, at the right stage in life, at a price point that reflects the value derived. This can only be achieved by adopting a system approach to this question – this isn’t just about people with money and nearing retirement getting unconflicted advice from a qualified professional. The bulk of recent legislative change has been focused primarily on this problem – ensuring access to quality advice, as opposed to access catered to an individual that's affordable too.
But affordable financial advice is also about young people getting low cost advice on budgeting. It's super funds helping out with superannuation decisions. Its about the poorer parts of society accessing quality pro-bono advice to get out of debt and of course, the bulk of Australians getting targeted advice when they need it, so they can enjoy a great life.
We need to broaden the debate away from just ensuring financial advisers are acting in client’s best interests, to a national debate around designing an overall framework that gives the whole country the type of financial advice they need, at a price point they can afford.
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What are you seeing in the market today with advisers/consumers/the community that indicates the need for advice?
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The amount of research now available, including from regulators such as ASIC, is frankly putting to bed the question around the value and demand for advice – the demand is only growing, in line with growing complexity of super, increased legislation, the need to self-fund retirement and the economic challenges facing the country post COVID. On top of that we have a clear evidence base that the traditional means of advice delivery, namely financial advisers, are either exiting the industry, or scaling back client numbers in response to the rising costs of advice. Our own research shows that in 2025 there will be 3.1 million households that will be able to afford to pay for advice at the price it currently costs, but the adviser population will only be able to service 2 million of those households. Any cursory consideration of this would suggest that it is not in Australia’s interests to have significantly less people making well informed financial decisions.
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What is the licensee’s role in the future?
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I think that’s a critical question for the industry right now. The licensee business model right now is a challenged one and must evolve to be commercially viable. It carries responsibility for all the remediation risk of inappropriate advice, without necessarily owning the revenue stream that comes from that advice. The fees for licensing are increasing, but they can get wiped out from a single remediation issue. I think the self-licencing trend is partially a response to that problem – if you are responsible, then you may as well own the revenue that goes with it. That said, licensees invest considerable resources into supervising and monitoring the provision of advice, training and educating around constant regulatory change and many other issues that most advice practices simply do not have the resources to perform at scale. Those functions are unique to financial advice and not present in other professions, but given where we’ve come from, I think we need to have a debate around where and how those functions continue to be performed, recognising that without significant overhaul of the current body of regulation, many advisers will want to continue to outsource that responsibility to someone with appropriate skills and resources. If not the licensee, then who?
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OPINION PIECE - by Nathan Jacobsen, Managing Director, Paragem
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