This blog follows Australian pension regulation, not because that’s what’s trendy in political circles (we are unlikely to see the next pension minister be such an admirer) but because of the it informs debates in this country we are yet to have. If, like me, you see Australia as the UK in three to five years’ time, then this blog will interest you. If, on the other hand, you see Britain moving more towards another model – Scandinavia for example, it may not. As a former adviser and as someone currently helping people take decisions by providing more relevant information, I am very interested by the Australian “Quality of Advice” review.
One of the key ideas being knocked around is that consumers can get simple advice straight from the providers of financial products on how best to use those products (funds, retirement income options etc.). As you would expect from any country (especially the UK) with a highly qualified financial advice sector, this is leading to heated debate.
Jim Hennington, who I use as a touchstone on these things, makes this analogy.
I often contrast the way financial planners work with the way medical doctors work. I guess GPs have the same issue with ‘simple advice’ – a patient comes in with a simple question and the answer is ‘it depends’ (e.g., depends on what other health conditions / medications they are on or what other symptoms they have).
And asks this question
But somehow GPs do this very quickly and with minimal paperwork for the patient. They are highly trained and then trusted to use skill and discretion out in the field, plus some brief notes on the patients record. Is there a way financial planners can move towards this sort of efficiency – somehow?
This in reply to this impassioned post on linked-in by Aussie financial planner – Paul Moran
The concept that consumers want simple advice on an ad-hoc basis sounds straightforward enough, except it is a myth.
The ‘Shangri-La’ of the current Quality of Advice review is a system where consumers could obtain low-cost, single-issue advice whenever they wanted it, and they would know what, and when, to ask their advice provider.
A consumer wants to know what the best super fund is – simple – ask a super fund employee. A consumer wants to know what the best investment is – simple – ask an employee of an investment issuer or a digital advice provider.
Of course, the answer to each of these questions is ‘It depends’.
But what does it depend on?
Well, it depends on their overall financial capability, their goals and objectives, conflicting priorities, future needs, and many things that these consumers have probably not thought of.
Estate planning consequences of superannuation beneficiary nominations, loss of life insurance by switching funds, the relationship between debt and retirement assets, security of employment, health, insurance needs… The list goes on, but if the client only asks one question of a system geared up to answer one answer, I can almost guarantee a poor outcome.
Simple advice does not exist, yet it seems to be a core goal of the quality of advice review.
Many outside of the real advice world have trouble understanding this, but this is more a reflection of the lack of financial literacy in the community. Clients simply don’t know what they don’t know.
We should also consider what Ms. Levy identifies as the risk of harm, which is not defined. “The greater the risk of harm, the more work a provider will need to do to be satisfied they are in fact providing good advice”.
Does this mean that a $10,000 investment requires less evidence than a $100,000 investment?
I am gobsmacked, however, by the contention that, while personal advice provided by a ‘relevant provider (current financial adviser or planner), personal advice can also be provided by ‘other than a relevant provider’ without any of the obligations of the relevant codes of practice or ethics.
This simply beggars’ belief and is an incredible slap in the face of the remaining advisers who have endured an incredible regulatory over-burden in recent years.
So, a digital advice platform is able to offer personal advice, for a fee, about a product they sponsor, and this is outside of the regulatory environment of current financial advisers. Banks, insurers, super funds, and digital advice providers can employ staff to provide ‘good advice’ about their financial products without adherence to a code of practice or ethics.
Worse still, “Where advice is simple and follows guidelines or rules provided by the employer, the professional standards that apply to a relevant provider are I think unnecessary” (QAR). In other words, they also determine what ‘good advice’ is.
My thoughts on this are simple. We do not take possession of sophisticated products without a user guide. But nor do we expect to go to a third party to get advice on how to use something we have already paid for – unless we made a voluntary purchase.
When I bought my boat, Lady Lucy, I could have taken her up and down the river and learned the rules the hard way – probably causing me and others some expensive damage. I chose to take advice on how to drive the boat myself.
But when I take a boat trip aboard someone else’s boat, I expect to be taught the rules of that boat by whoever is in charge. I do not have responsibility for the boat, but I have some responsibility to make sure the boat is working properly. I expect this of my crew at weekends.
People setting out to manage their retirement affairs for themselves can go it alone and risk crashing their finances – or take advice.
But – and this is where I differ from Paul Moran, those who find themselves in someone else’s workplace pension, joining on a semi compulsory basis, should not be required to learn how to captain that boat. They should be left to enjoy the experience with a minimum of demands made on them.
Addendum; doctors and nurses.
To Jim’s point on productivity, the processing of advice increases with experience, exceptions are few and most people acquire the same symptoms and need the same remedies. The exceptions are expensive but cannot be ignored and need to be factored into a doctor’s schedule. But if you want to be treated as an exception – it’s best to go private.
Ah yes, the Holy Grail of simple advice. The FSA and then the FCA produced several guidance papers on how this could be delivered, presented to many conferences and had one-to-one briefings with firms. But still firms are looking for ways of providing this simple advice (in a profitable way for the advice giver, of course).
Of course, it may be that everyone has a different view and expectation of what simple advice is. A cynic might suggest that the consumer wants simple advice, which costs nothing but allows them to hold the provider of the advice to account if it turns out to have been unsuitable; while a product provider wants to provide a recommendation to buy their product but not to be held accountable if the recommendation turns out to be unsuitable.