To many in the industry, the loud bellows coming from the FSC, ASIC, the government, FPA, Six Park and even, ourselves, on the issue of scaled advice sounds like irksome shrieking from those that have little respect for the 5 years of FOFA heartache and a further 6 years of FASEA grind.
Are the murmurs around scaled advice finally the regulator and government’s way of acknowledging they went overboard on the compliance boxes a financial adviser needs to tick (with little in the way of winding back what an adviser needs to do)? A way to appease the super funds to deliver intra fund advice without the wrath of the regulator? Or a way to give digital advice providers “free carry” to suit the government’s innovation agenda?
Okay, as anyone that’s been to a marriage counsellor will attest (sorry to my wife here – we do have a 3-year-old and 5-year old that do test our limits!), you first have to empathise with your partner and acknowledge their fears are real.
The fear of scaled advice, therefore, is somewhat founded...
In the UK, the implementation of the Retail Distribution Review in 2013 (a mix of our FOFA and FASEA), raised the minimum level of adviser qualifications, improved the transparency of charges and services and removed commission payments to advisers and platforms from product providers. It also resulted in 20-30% of advisers leaving the industry. In Australia, from the top of the market, we have now had 28% of advisers exit the industry.
Lo’ and behold, this exodus in the UK led to the Financial Advice Market Review (FAMR). FAMR was introduced to address 3 major concerns – affordability, accessibility and liabilities / consumer redress. FAMR in part to address concerns 1 and 2 recommended the implementation of scaled advice or in the words of the FCA, streamlined advice, called either focused advice or simple advice. And was to adopt a far more common-sense approach to “advice”.
Some may argue this is similar to the Rice Warner recommendation (download report here), which would classify personal advice into simple and complex, with simple being solved predominantly by technology.
There have been pros and cons to the RDR and FAMR in the UK. Limited advice or restricted advisers have flourished as well as certain digital solutions, but comprehensive advisers (independent) have decreased.
Following the RDR, financial advisers were split into two categories: independent and restricted. Independent financial advisers (IFAs) needed to consider all different kinds of investment products (for example, funds ETFs, investments trusts, pensions and so on) before rejecting them as unsuitable, whilst restricted advisers did not have to be knowledgeable about all areas of the market; they had the freedom to choose areas of specialisation.
Source: FCA/Financial Adviser FOI Request
Many advisers fear we will see the same play out in Australia, a continued decline in the “comprehensive adviser”. So, not really, an unfounded fear from those who have invested hours into their education and training at the request of the government.
This begs the question of whether the quality of advice has dissipated? Or has certain advice now been directed into cheaper, more accessible options?
The FCA is now conducting a review of the RDR and FAMR, and its impact on advice affordability and accessibility, and more specifically the boundary around advice and guidance. The former beholden to far more scrutiny and obligations (like MIFID 2), akin to our incoming DDO responsibilities (Design and Distribution Obligations). No doubt, the government and the regulator will be furnishing any final recommendations, following the FCA’s hard yards.
Jumping straight to affordability and accessibility, the model that is quickly gaining traction, particularly in the US (the Charles-Schwab model, the most celebrated), is the hybrid model or a co-existence of digital, simple (digital + advice) and comprehensive (holistic advice). It is a model that recently saw Picture Wealth get $12M in funding whilst in partnership with Mark Euvrad’s NEO Financial Solutions in WA. It is also the future theme that former JP Morgan alumni and technology-advice enthusiast and now Six Park Founder, Pat Garrett, is successfully rolling the dice on….
“For SixPark, the intent is to work with advisers to help them (serve a broader segment, prepare for the wealth transfer) and consumers (get affordable, prudent investment management help). Our NPS and other client satisfaction metrics suggest people love it when they start using it.”
SixPark released some compelling figures in their white paper, on the back of Investment Trends research, which found 2.6 million Australians are looking for a financial planner, with cost and supply being an issue – an issue solved by digital advice offered in a hybrid form.
Since Covid-19, we have had a surge in new investors, particularly the younger generation – platforms like Super Hero, Self Wealth, RAIZ and Stockpot have made investing more accessible. As identified by ASX’s recent investor study, this demographic is “hungry for knowledge and aware of their relative lack of investing experience, members of the next generation show a relatively high degree of willingness to seek advice.” Across the board, 63% of Australians are open to receiving advice.
So, whilst the scaled advice model is already here, the noise in the hallways is that it will soon get a boost from the government and the regulator. Either way, there’s no stopping it, but you can be “scaled advice” ready.
And like marriage counselling, meeting “in the middle” (or adopting a hybrid model) has ensured the viability and progressiveness of my practice (aka “marriage”) and seen my clients (aka “kids”) flourish!