As financial institutions and product providers scurry to identify and capture potential growth opportunities from the government’s Delivering Better Financial Outcomes reforms, financial advisers might be fixating on the wrong things.
The government’s four-page Delivering Better Financial Outcomes (DBFO) reform roadmap is an industry growth plan.
It is not perfect. For example, the proposal to call customer service representatives employed by financial institutions and product manufacturers “qualified advisers” is a grave mistake but the broader package of reforms promises to make good on QAR’s objective to make financial advice accessible and affordable to more Australians.
The government’s reform package could also solve the advice industry’s biggest problems, namely the ability to attract talent and attract clients.
According to Wealth Data, over 12,000 financial advisers have retired or handed back their registration, since the Financial Services Royal Commission, representing a 43 per cent decline in the size of the market in just five years.
While the bleeding finally stopped this year, only around 260 new advisers have joined the industry so far in 2023. An additional 334 provisional advisers registered for the professional year.
For advisers focused on growing their business and helping more people, the numbers are dire.
Lack of talent is the single biggest challenge facing financial advice businesses inside the AZ NGA network.
But the DBFO proposals create a financial adviser pathway. By easing the compliance burden on advice businesses and making room for a new category of adviser that does not need to be degree qualified or undertake a professional year, a career in financial planning becomes a legitimate option for more people.
If implemented, DBFO will bring thousands of new entrants into the industry.
They may start out in the call centres of financial institutions giving limited product advice with nothing more than a Diploma but the country’s future professional financial advisers will come from this large pool. It will also produce future paraplanners, support staff and business leaders.
A few years down the track, this pool will be an important source of talent for professional advisory firms.
Similarly, professional advisory firms should be thinking about hiring, training and mentoring their own qualified advisers (more on this later but let’s just use that term for ease).
Qualified advisers will be cheaper than professional advisers and able to perform some comparable tasks, freeing professional advisers to focus on higher value, revenue generating activities.
Concerns that the government’s post-QAR package opens the door for financial institutions to get back into personal advice are valid but the world they are returning to is markedly different. The problematic and disastrous combo of product commissions and vertical integration is gone, and stronger consumer protections are in place.
Professional advisory firms should roll out the red carpet for any bank, super fund and life insurer seeking to build a large scale salaried adviser network to give simple personal advice to their customers and members. Not only will they be raising up the next generation of professional financial advisers, they will be delivering a valuable service to the millions of Australians who only want basic advice… for now.
As the Assistant Treasurer and Minister for Financial Services Stephen Jones pointed out when unveiling the DBFO package, it is impossible for the nation’s 16,000 professional advisers to meet the advice needs of the five million Australians who are in or nearing retirement, not to mention the millions of aspirational, debt-burdened younger individuals and households.
The availability of cheap or free limited advice would also expose more people to the value of advice and create a pathway to more comprehensive holistic advice.
Professional advisers and business owners building Super firms should not fear competition from banks, super funds or life insurers that are trying to service basic needs.
Qualified advisers won’t happen
The advice industry’s reaction to the proposal to classify a new category of less experienced, less educated adviser as “qualified advisers” is completely justified but there’s little point getting worked up about it because this mistake will be corrected through the legislative process.
While some pockets of the industry enjoy conspiracy theories about Labor governments and union officials colluding to give industry super funds a leg up, politicians and policy makers will not enact legislation that could mislead people.
The term qualified adviser is misleading because a reasonable person could interpret that it implies a high standard of quality. A deceptive label is clearly not in the public’s best interest and it surely cannot happen.
Overall, the reform package is a triumph of substance over form.
It presents opportunities for all players, not just financial institutions and product providers. Over summer, advice businesses should carefully read the government’s DBFO overview and consider how they can take advantage of imminent changes to grow their business and better serve their clients.
Read more of Paul Barrett’s articles in Professional Planner.