In my last article, I wrote about the challenges facing the Australian financial advice industry and I posed the question: how will Australians access affordable quality financial advice going forward?
Recently, Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, gave a speech challenging Australian financial advisers: “Now there is a real chance for the professional advice industry to demonstrate its true value.”
So how has the industry responded?
For many, it was to leave the industry. When I last wrote, there were about 24,000 financial advisers in Australia. The most recent data shows there are just under 22,000. This is a continuation of the trend we have seen over the last few years as margins are squeezed and education and compliance costs increase.
The trend of large financial services institutions exiting the advice business is also continuing. In March, one of Australia’s big four banks, ANZ, announced that it would axe 230 jobs from its private bank and advice business to reduce costs. Recently, QSuper, one of Australia’s largest superannuation (pension) funds announced that it would stop offering comprehensive financial advice to its members.
And this is only the beginning. There’s no doubt COVID-19 has changed the financial advice industry in Australia. But what will it look like after the pandemic?
The Australian government has put in place several short-term measures in an attempt to ease the economic burden on individuals. These include allowing Australians that are adversely financially affected by COVID-19 to access some of their retirement savings early. This Early Release Scheme has seen well over two million Australians make withdrawals from their superannuation accounts.
In April, the government acknowledged that Australians are likely to need access to financial advice amidst the pandemic and economic downtown by announcing a series of temporary measures to improve access to financial advice ending on October 15, 2020. These relief measures are intended to allow advisers to provide immediate, low-cost advice when a client needs urgent financial response to the crisis.
These measures in conjunction with the extensions to the deadline for FASEA exams and qualifications requirements will provide advisers with appropriate assurance to providing quality advice at this challenging time.
The Government has also extended transitional timeframes for existing advisers to comply. It will be interesting to see whether this announcement will keep some advisers in the industry for a little longer.
Most of us are familiar with the meme that circulated widely in March asking who led the digital transformation in your company: CEO, CTO or COVID-19?
COVID-19 is forcing financial advisers to examine their business models, including how they offer and deliver value, forcing many advisers to adopt online communication tools. Digital may be the new normal. In a recent study, KPMG found that 80% of consumers receive satisfactory services through digital means.
Technology is going to be part of the solution as advisers continue to develop digital capabilities to support a lower cost digital advice offering. Many financial advisers are considering how to utilise the online communication and collaboration tools beyond the current crisis. This includes better integrating the appropriate technology and workflows into the advice process and upskilling key personnel and staff.
Fintech solutions will be important for reducing costs and increasing services. Earlier this year the government introduced legislation to make it easier for fintech businesses to trial new products in an enhanced regulatory sandbox, which will be available from 1 September 2020.
Compliance is a significant cost to the provision of financial advice. The COVID-19 relief measures showed that it is possible to reduce this cost for narrow, targeted financial advice. The trend of institutions offering scaled advice rather than comprehensive advice is expected to accelerate. Scaled advice is personal advice that only looks at a specific issue.
There is already some discussion about how this approach might be used post-pandemic to provide personal advice that is limited in scope and most cost-effective for the consumer.
Whilst the near future will continue to be uncertain, the good financial advice providers will be using the responses to the pandemic and economic crisis to shape how they emerge on the other side, whenever might be.
Stephen Huppert is an independent consultant and advisor working with institutions big and small that are committed to improving the retirement outcomes of Australians. His clients range from established entities, including some of Australia’s largest superannuation funds, through to emerging businesses bringing new solutions to the industry.