Earlier this week, Sally Loane announced she would be leaving her role as CEO of the Financial Services Council.
Over the past seven years, Loane has steered the FSC through a period of major industry upheaval, beginning with the Trowbridge Review – which resulted in the Life Insurance Framework – and ending with multiple wide-ranging reforms developed in response to the Royal Commission. And while the Commission itself represents a fairly significant moment in the history of Australian financial services, Loane sees it as part of a much longer process.
“So many of the changes you’re seeing in the industry were already happening before the Royal Commission,” she says. “We got a lot of the attendant legislation post-Commission, but the banks were already exiting wealth. ASIC was already investigating fees for no service. Change was already underway; the Royal Commission just amplified it.”
Given the big-tent nature of the FSC – its membership encompasses advice licensees, life insurers, super trustees, banks and funds management businesses – the organisation, and thus Loane, have been involved in virtually every significant policy discussion in financial services throughout her tenure as CEO. And most recently, those discussions have been focused on financial advice.
The future of advice
The FSC’s latest white paper on advice, discussed here last week, makes five key policy recommendations which, according to accompanying research from KPMG, would reduce the cost of providing advice by 37% if fully implemented. These recommendations were developed in consultation with industry stakeholders following the earlier release of the FSC’s green paper on advice.
One of the prevailing themes in the new paper is simplification. Where the green paper proposed reclassifying advice under five categories – general information, simple personal advice, complex personal advice, strategic advice and specialised advice – the white paper cuts this down to two: personal advice and general information.
According to Loane, this change came down to what made the most sense for both the FSC’s members and what consumers are actually looking for when they see an adviser.
She explains: “Following a huge amount of input from consumer groups, SMSF associations and advice groups, we found members were not confident going forward with the five categories because it would add complexity.”
FSC policy manager Zach Castles adds that ultimately, the categorisation of advice should be based on how a consumer understands it. “What consumers are seeking,” he says, “is a simple advice process that’s low cost, and the deciding factor between what’s advice and what’s information is a consumer’s individual circumstances. Having a spectrum of different categories of advice just distracts from that.”
The brick of paper
Simplifying (and formalising) these definitions is a critical step in the “professionalisation” of advice, Loane says, but it’s also been given a longer lead time in the white paper than some more urgent recommendations, which include abolishing the safe harbour steps for complying with the best interests duty and replacing the SOA with a streamlined “Letter of Advice”. She believes that addressing the size of the average SOA – recently described as a “brick of paper” by FPA policy head Ben Marshan – will have a significant impact on how consumers perceive advice as a profession.
“I recently went to my financial adviser,” she says, “and the amount of ‘stuff’ – the amount of documentation that goes into the advice process and the hours and cost involved in producing it all – is such an obvious issue. When you go to your doctor or your dentist they’re not required to do an 80-page SOA when you sit down, and that’s because they’re professionals governed by all the checks and balances you associate with a profession. I think everybody knows we have to find a way to fix this.”
Castles notes that while the Corporations Act requires SOAs be “clear, concise and effective,” the average SOA ends up being anything but. “This is because of risk aversion,” he says, “and an inclination towards complying with every step of what is a prescribed process. The level of prescription in these obligations needs to change, but also professional judgement needs to sit at the use of those obligations. This puts the onus on the adviser to make those calls and provide an advice offering to their clients as they fit, justified under one overriding duty, which is the best interests duty.”
Working with the industry
Responses to the FSC’s proposals have been broadly supportive – the FPA said the paper “closely aligns with [its] five-year policy-platform roadmap,” the AFA described it as “an important input into Treasury’s 2022 Quality of Advice Review,” and the SMSF Association praised the recommendations “that will benefit clients and advisers, deliver cost savings and practical, relevant advice that consumers will understand and engage with.”
There has some criticism in parts of the industry, though – most notably from Peter Johnston, executive director of the Association of Independently Owned Financial Professionals (AIOFP), who called the paper “politically-motivated” in an open letter and described its recommendations as “partial” or “irrelevant” solutions to the problems facing the advice industry.
Responding to this, Loane points to the public support from the majority of Australian advice associations, adding: “I think most advisers are looking for some change, and we know that because they were a part of this process. There have been times when we, representing the licensees, and adviser groups haven’t seen eye-to-eye, to put it mildly, but I think overall people recognise we have to get something done. It’s time to put a line in the sand.”
Loane hopes this “line in the sand” becomes a valuable part of the Quality of Advice review next year and says she’s enjoyed being a part of the process – which necessitated cross-industry collaboration and consultation, something that’s been essential to her role at the FSC since she joined.
“I really believe advisers will come into their own at the end of this process,” she says. “Given the massive generational wealth transfer that’s taking place, their role is more important than ever. And I want to see the importance of the advice profession recognised. There should young people who love the business of people and the business of markets and money going into university and thinking, ‘I really want to be a financial adviser.'”
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