Once again the commentary around the findings of the Royal Commission Into Misconduct In The Banking Superannuation and Financial Services Industry has been on my mind. Like most, I have watched, listened to and read mountains of information from a range of sources, some well-informed, some not. Let it be said that I agree with the majority of the recommendations proposed by Hayne, but unfortunately much of the commentary has left a lot to be desired.
The sad thing is that the majority of consumers will not read the detail of the recommendations, and their opinion will be shaped by what is promulgated in the media. The outcome is likely to be that there will be even further mistrust of financial advisers, an even greater reluctance of Australians to seek help, and a lower number of people receiving the real benefits of professional advice. The Court Of Public Opinion is the highest court in the land when it comes to matters like this.
It still seems to me that there is a fundamental misunderstanding from many of the commentators which does not draw a distinction between financial advice and investment advice. Many of the commentators seem to believe that the only thing we do is recommend investments, and that the only value we bring to our client’s lives is related to the products we recommend. It is precisely this attitude on the part of some in the financial services industry which has led to many of the sins uncovered during the Royal Commission process. Whilst commentary should rightly acknowledge that for some so-called advisers investment advice was all that they do (or did), my fear is that for those of us who take a more whole of life approach the forthcoming regulatory response is likely to have a significant impact which perhaps was unintended.
In my experience, the investment portfolio side of many client cases is only maybe 10 to 15% part of what it is that we do for them when we are assessing someone’s overalls situation and helping them work towards the goals dreams and ambitions they have for their lives. I have previously expressed a view that the biggest part of what we do is formulate a strategy to enable a client to achieve what they want to achieve, and that financial products (if any) are merely tools to fulfill the needs of the strategy. We may indeed recommend a contribution to superannuation, or an investment outside of superannuation, or even an investment property as mechanisms with which to build wealth, but the advice is around the wealth building, not around the investments.
In my opinion, much of the regulation that currently exists, and that which is likely to exist post-Royal Commission does not apply in circumstances where no financial product is recommended. Unfortunately, much of the commentary I have heard assumes that because someone provides financial advice, they must, therefore, be mostly concerned with recommending a financial product, or that because someone seeks financial advice, they must, therefore, be seeking advice around an investment portfolio.
I even heard of one commentator (influential but ought to know better) say that in his belief the result of the Hayne Royal Commission would be that financial advice would become the domain of the rich and that those less well off would find themselves in a position where the advice they received would be generic and done by an algorithm. For me, this fundamentally misunderstands what it is that we do. Surely those people who don’t have substantial means are precisely the people who need financial advice more than anyone else – the rich don’t need help in getting rich.
Very often, particularly for clients in the early stages of their time with us, the focus is largely on helping them to manage cash flow and debt, with very little involved in the way of investable assets. It is for exactly this reason that we charge a fixed fee rather than a percentage of the assets upon which we advise because it means that we are able to deliver advice to those who most need it whether or not they have any substantial assets for us to manage (and this is not what they are coming to us for anyway). It seems to me that this is the way of the future; a world where consumers pay a fee for advice, not product and decide whether they are prepared to pay a fee for the value they expect to receive, the magnitude of the fee being determined by their anticipation of that value rather than the size of their wallets.
The real value of financial advice is brought into sharp focus when you sit across a desk from a 50-year-old man who is in tears because he fears he is going to have to work until he dies, and doesn’t know what to do about it. When you can show that he is going to be OK, and that by adopting some sound practices and strategies, regardless of any underlying product involved, you ought to feel proud to be part of this industry/profession. If you happen to also be paid for your services commensurate with the value you deliver in the eyes of the client then that is a matter between you and him.
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