Despite ongoing problems with public perception, there are positive signs coming from within the financial advice industry, indicating that they’ve heard the messages and heeded the lessons around the systemic and cultural failings surrounding industry practices. The self-improvement carrot urged from within the industry – and kicked along with a healthy dose of government stick, should see public confidence in the industry return. It will however take time and continued vigilance.
Anyone not living under a rock for the last decade knows that highly publicised scandals within the financial sector have variously chipped and smashed their way through the much of the trust and support traditionally enjoyed by those in the financial sector. The traditional respect I’m talking about was when, if you wanted a personal reference – going to your bank manager (with whom you had a close personal relationship) would be seen as a legitimate approach to help gain respectability. Anyone under 40 could be forgiven for reading that last sentence and staring incredulously at the screen with a wry smile – but it did used to be that way!
Changing business practices, vertical integration, consolidation, technological advances and easing of restrictions on international flows of money in the last few decades have all contributed to the construction of byzantine, convoluted and extremely complicated methods of creating, moving and storing wealth that are beyond the understanding of most people. This trend culminated in the GFC, which brought light to some of the deceitful inner workings of the finance industry, and which gave good reason for people to be wary and cynical of anything to do with finance.
It has taken the finance industry a while to recognise that action was needed, but there is hope that via a combination of soul searching within the industry along with government mandated change, the actual and perceptual problems that contribute to the loss of public faith are starting to be turned around.
In the financial advice space, much has been talked about and done to move the industry towards becoming a true profession. There is still a way to go, but changing the way advisers are remunerated, removing conflicts of interest such as commissions on investment products, making the clients best interest paramount and increasing the educational requirements of advisers are changes that are all designed to improve the quality of advice given to consumers seeking financial advice.
So too is the nascent recognition that culture plays a large role in the way the advice space operates; a different ethical framework for practitioners is being encouraged. This should not come as a surprise to anyone who appreciates that the advice profession has evolved largely from the insurance sales industry, where traditional sales practices and techniques are slowly giving way, with more comprehensive and tailored advice being offered today. Comprehensive advice and financial ‘coaching’ is certainly culturally, a far different beast than just sorting out someone’s life insurance policy.
The continued drive to repair past damage and improve the industry is also evidenced in the results of the many inquiries. Major institutions have been required to pay hundreds of millions of dollars to customers who have been wronged. Only the most cynical would think that the major players would not learn from their past failings. The reputational damage they have exposed themselves to along with the monetary compensation itself means that it is absolutely in their own best interests to prevent continual replication of past inappropriate behaviour that has been exposed.
Further restitution is being discussed such as setting up a compensation scheme for those people who have been deemed eligible for payment, but for reasons such as offending company insolvency, have never been paid.
With the recent legislative changes and industry action, the framework for further improvement is being created on a solid base of widespread recognition of the problems involved. A quick look at the situation around financial advice in the US should give us an appreciation of the work being done here by industry and government to improve the way financial advice is delivered. With this work ongoing, it might be time for many Australians to start to reevaluate their attitude to the financial advice industry, use the tools, tips and transparency that is now available, and re-engage with financial advisers to see how they might be able to help define and secure their financial future.