Address to the Association of Financial Advisers conference
21st September 2021
Hello everyone, and thank you for the introduction. It’s terrific to have the opportunity to address you all today.
Congratulations to the AFA on 75 years. It really is an extraordinary achievement.
Your leadership and commitment to quality financial advice has seen Australians through the many ups and downs of life. It’s a significant milestone — and an opportunity to not only reflect on the past but to look to the future of financial advice in Australia.
Over the last ten years financial advice in this country has gone through an enormous period of transformation. And as an industry, you should be proud of your agility - and most importantly - your unwavering focus on the financial empowerment and wellbeing of your clients.
Technological change has been a game changer for the industry. Today, there is boundless information online about financial products, services, budgeting, and investment at the touch of a button.
Earlier this year I made a comment about TikTok finance influencers - or finfluencers. I made it very clear - if they are not authorised and registered, they are not financial advisers, they are the equivalent of a taxi driver giving stock tips.
And it goes without saying that if you make a financial decision that goes drastically wrong based on the musings of a taxi driver, or a guy down at the pub, or a 16 year old on TikTok, it shouldn’t be up to the Government, or the industry, to bail you out.
And I stand by that. I’m a Liberal. And as a Liberal I don’t believe in establishing unworkable rail guards that inhibit progress and innovation. I have no interest in perpetuating a nanny state culture where we resort to banning things to save people from their own follies.
I believe in personal responsibility and common sense.
But for that to work, we must make sure consumers have access to the information that they need to make informed decisions.
It is essential that consumers know what they are getting, and that what’s written on the box is what’s inside it. Consumers must have the information to know that the influencer is not an accredited adviser, and to not assume they will act in their best interest and give them unconflicted advice. Consumers need a lay of the land to be able to navigate who they can trust, and who they cannot.
Twenty years ago, you could go to a financial adviser and have no ability to verify whether or not that adviser was going to act in your best interest.
You didn’t know if the product your adviser recommended was the best product for you, or simply the product that offered them the highest commission.
You didn't know if that adviser had the appropriate technical knowledge, or knowledge of the law as it applies to their practice.
Indeed, you really had no visibility over whether that person was a good adviser -- like all of you that I am talking to today -- or not.
I just want to veer into slightly academic territory for a bit here. Bear with me, I don’t know how many CPD points you get for listening to me speak, but this should justify it.
There is a famous concept in microeconomics called asymmetric information. I’m sure many of you are familiar with it. The original theory goes something like this:
There are good used cars and defective used cars
A buyer has no means of distinguishing a good used car from a defective used car
So the buyer has to assume that the quality of the car will be the average quality -- and they will pay a price that reflects the risk that the car may be defective.
In a market like this, sellers of good used cars end up getting lower prices than their cars are worth.
And there we have a market failure.
One way to solve this is through creating a signal which enables buyers to know which cars are defective and which are good. Like a roadworthy certificate.
You can see the parallels with financial advice. In the past, buyers of advice services could not tell whether an adviser was good, and whether an adviser would act in their best interest. So, with disasters like Storm Financial, when consumers began to realise that while some advisers out there were good, some were not. But they were unable to distinguish between them with any certainty -- that meant that the good advisers suffered financially, and indeed reputationally, because of the behaviour of the bad advisers.
I know I’ve mentioned this before. I spent many years working in and around the financial advice sector. I’m not just some casual observer, or a newcomer - I was there in the cowboy years, and even well after reforms began, there have been some that were reluctant to put away the big hat and spurs. Let’s not deny the behaviour that went on in some parts of our industry: I saw it, Hayne saw it, I’m sure many of you saw it too.
That behaviour caused massive reputational damage for the entire industry.
I often hear good, hardworking advisers tell me they are still suffering -- that the reputation of the industry is still tarnished -- because of the actions of some advisers a number of years ago.
And this market failure is really what the financial adviser standards attempt to resolve. They signal to the consumer -- if you come to me, as an authorised, registered financial adviser on a publicly available register -- then my advice to you will be in your best interest.
In fact, I am under a legal obligation to act in your best interest.
I am obliged to provide certain disclosures to you.
I have passed an exam.
I have fulfilled specific education requirements.
And I can’t accept commissions or remuneration which would conflict with the duty I have to advise you. These verifications are so important when consumers are thinking about entrusting their life savings to someone else.
That’s why unauthorised advisers are one of the biggest risks to the industry. If people appropriate your brand – the financial adviser brand – and pass themselves off as one despite not having done the diligence, and not having the same obligations, then this undermines the brand that is such a crucial signal of quality to consumers.
That’s why we need an up to date financial advisers register that consumers can access and that they are aware of so consumers can check if an adviser is registered.
It’s also why one of ASIC’s most important enforcement tasks is preventing unauthorised advisers from claiming to be advisers. The threat is not from people who may incidentally or accidentally veer into financial advice territory on their social media.
The threat is from people who are fraudulent -- who claim to be trusted advisers but are not. The threat to the advice industry, to the consumer, is from people who lie and deceive in order to get consumers to trust them, and in doing so, undermine the trust in the entire industry.
And the trust in the industry is only going to get stronger.
From 1 January 2022, assuming the safe passage of the Better Advice Bill through the senate, consumers will be able to trust that financial advisers’ obligations will be monitored and enforced with the creation of the single disciplinary body.
And a more up to date, accurate financial adviser register will increase transparency and allow consumers to be sure of who they can and can’t trust.
And we will establish an industry-funded, forward-looking, compensation scheme of last resort, as recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
This commitment is an important step to building trust and confidence in the dispute resolution framework within the financial system.
The compensation scheme of last resort will ensure individuals and small business consumers have confidence that when a dispute is determined in their favour, that compensation will be awarded, even if the financial firm becomes insolvent.
Importantly, a CSLR is a final safety net in the compensation arrangements framework. That is, a CSLR should only be called on to provide compensation after a consumer or small business has exhausted all other avenues.
The scheme will primarily cover failings in personal financial advice, and increase consumer confidence in the advice sector, making it easier than ever for consumers to have access to high quality, trustworthy financial advice. And it will cover eligible unpaid determinations that relate to disputes lodged with AFCA on or after 1 November 2018.
The Ramsay review recommended that a CSLR should cover financial advice. The review found that most unpaid determinations were in the financial advice sector. By value, 92 per cent of unpaid FOS determinations were from financial advice.
For this reason, the CSLR will not include managed investment schemes, and primarily cover personal advice - with a few extensions to other “advice-like” areas, for example mortgage brokers.
The CSLR is a crucial reform to re-invigorating consumer confidence, without limiting the viability of the industry.
Professionalisation allows us to solve the information asymmetry. You can say to clients that they can trust you, in a way that they would never be able to trust the TikTok influencer, the guy down the pub.
And let’s not forget the path that led us here; it was the industry itself that recognised its own weaknesses and changing consumer expectations. It was the industry that wanted to professionalise, and the industry itself that asked for the government to step in and raise standards across the industry as a whole. The Financial Advice sector recognised that it had to put in place higher standards, to ensure that the good advisers were not pulled down by the bad.
You should all hold your Financial Adviser Standards, registration, and Authorisation up like a badge of honour. Consumers know that they can trust you, and you have the knowledge and experience to do the best by them.
But at the same time, there are many people who may want to listen to the guy down at the pub, or the taxi driver giving stock tips. People should be able to voice their interests and talk to others about them. I don't want to prevent people from being interested in finance, from expressing their views, engaging with others and learning.
Of course, that isn’t a free pass to scam people, or engage in misleading, deceptive or dishonest behaviour. There is never an excuse for that. But the existence of a small number of unscrupulous actors does not justify wholesale constraints and policing of freedom of expression for everyone.
Personal responsibility and freedom to make your own choices are a hallmark of a liberal democracy.
But we do need places that people can turn to, away from the noise, that they know will provide them with good quality accredited advice.
So I want to send the message out loud and clear -- if you want advice, authorised, registered financial planners are a service that you can trust.
Now, I acknowledge this transition has not been easy. It’s been a long journey. The industry has been through a huge transition over the past 15 years. There have been numerous reforms, whether it be reforms to conduct, education standards, ethical behaviours or the way that fees are charged and commissions earned.
There are so many oversight bodies in financial advice now I can barely remember them all.
Between FASEA, ASIC, industry bodies, licensees, and the Tax Practitioners Board – they all have different and often competing requirements of financial planners that are getting in the way of what you do best - establishing a working relationship with an individual and helping them.
Better Advice Bill
Which is why we are taking the Better Advice Bill through parliament.
The Better Advice Bill will implement Recommendation 2.10 of the Financial Services Royal Commission, and Recommendation 7.1 of the Review of the Tax Practitioners Board.
It will streamline the number of bodies involved in the oversight of financial advisers, delivering much needed improvements to the regulatory framework for the sector.
It is the first step in entangling the gordian knot, the first step in cutting red tape for advisers, the first step in making life that little bit easier for each and every one of you.
These reforms will pave the way for Australian advisers to be free to focus on giving financial advice, while Australian consumers can be confident that they will always be receiving affordable, high-quality advice.
We will lower the cost of doing business which can be passed onto the cost to households. Creating standards that work for everyone.
The second step is reducing regulatory overhead costs.
The Government is spending $92 million dollars to freeze ASIC levies for two years back at where they were in 2018 while we conduct a review of ASIC’s industry funding model to make sure the bill that they present to industry each year is appropriate.
And ASIC levies charged for personal advice to retail clients will be restored to their 2018-2019 level of $1,142 dollars per adviser for the next two years.
That will save every adviser two thousand dollars.
It hasn’t been an easy two years. I spoke to a group of advisers a couple of weeks ago who told me they were working excruciating hours seven days a week just trying to serve their clients.
There are other costs coming, too. There will be a cost associated with the compensation scheme of last resort. The Government is aware of these imminent cost pressures, and decided that reducing the ASIC levies by $2,000 was the best relief measure for industry.
Quality of Advice Review
And lastly, next year we’ll be conducting the quality of advice review to ensure that we have the right regulatory settings in place.
The Review will also incorporate ASIC’s Life Insurance Framework (LIF) review.
Our main focus will be looking at the regulatory settings to ensure that they support Australians getting access to affordable, high quality advice.
In conducting this review, we will look to create a fair balance, ensuring that we offer consumers the necessary protections while also removing unnecessary red tape that needlessly adds to the cost of advice for consumers.
But there is another transition that is going to make advice more affordable: digital advice.
There are two ideas of digital advice that most people seem to use. The first is robo-advice, where the consumer interacts exclusively with a software program - or a bot - which takes their information and processes it to provide advice.
The second is what I’m going to call ‘digitally augmented’ advice. This might mean, for example, that the customer inputs their information into an online tool, and the software behind it creates the basis for a Statement of Advice. It might also mean automated compliance functions and checks.
Both of these will ultimately make advice more accessible and affordable. The digitally augmented advice is self-explanatory – advisers can spend less time collecting information, making sure they are compliant, and putting together the basic pieces of advice and focus on the value add.
And human advisers can do the things that machines cannot do very well – manage clients in times of stress, understand in a nuanced way what their needs and desires might be, and be a human voice to explain complicated financial decisions to clients.
Digital advice will not replace advisers, it will augment them and enhance their capabilities. Advisers will be able to better serve more clients at lower costs, helping make advice more affordable and accessible than ever.
The Consumer Data Right
There is also an incredibly significant opportunity for advisers to make better use of data. As a government, enabling consumers to take control of their data and use it to make their lives easier is a key priority.
The Consumer Data Right enables consumers to safely, efficiently and conveniently harness information about themselves held by Australian businesses for the consumer’s own benefit.
It enhances data-driven innovation and can help create new products, services and jobs. It increases competition, benefiting consumers and the Australian economy more widely.
The Government is considering changes to the CDR, designed to reduce barriers to participation and enable consumers to better leverage their data in banking. This includes giving consumers more choice about who they share their data with, such as their financial adviser, mortgage broker, accountant or tax agent.
If advisers could – with the consent of the client -- have access to a new client’s financial history, imagine how much more efficient your practices could be in serving your clients, and with that, deliver advice at lower costs to consumers.
And what of robo advice? It’s true – no one has yet cracked the nut of full service robo advice.
And when someone cracks the nut – puts together a fantastic product – I also don’t think robo advisers are going to replace the 18,000 or so financial advisers practicing in this country.
What robo advice and other digital tools will do is offer an alternative for people who don’t currently have access to an adviser, or who wouldn’t pay for an adviser.
It will get young people more engaged with their finances. And it may act as a gateway to full service financial advice
As a mother of three young adults I can tell you that many young people would prefer to first engage with an app than a human.
But as their financial circumstances become more complex, as this generation of young people become more affluent, have more assets, they will then seek out more complete services -- an adviser who can provide the additional value-add, and tailored understanding of their personal situation.
Robo-advice should not cause concern, it should make you excited at the opportunity you have to create a fantastic pipeline of clients for full service advice.
That is the future of financial advice.
But what does that mean for policy and regulatory settings? I want to see more regulatory sandboxes, and better ones. I want to make sure that there are no impediments to using technology to provide or help provide financial advice.
I want us to be in a place where the regulator can tick off a piece of software or an algorithm and say ‘if it fulfils these criteria and is used in this way, then it is compliant’.
In essence - I want to help the advice profession flourish. I know we all share that goal.
On that note, thank you to the AFA for bringing together this group.
It’s been a difficult few years, but it’s a privilege to represent such a passionate and resilient industry.
I’m excited for the future of advice in this country.
The voices and insight of everyone here today has been paramount to the Government’s policy direction, and will continue to be into the future.
We know that you know your industry better than anyone else. And I want to personally thank those of you here today who have contributed your knowledge and experience to Government so constructively over the years.
As I’ve said before, this Government believes the advice industry is at its greatest when financial advisers have the opportunity to serve their clients to the best of their ability, and consumers have the confidence and validation to trust them in their endeavours.