Now that we have a new Morrison Federal Government and the implementation of the Hayne Royal Commission (RC) recommendations will be high on the political agenda, what does it mean for the Australian consumer going forward, especially when retirement planning will be so important to the Baby Boomer generation?
Firstly, the RC will see many long-term consequences that will impact the advice industry.
The post-Keating era saw the rise of institutions moving into the advice space. This period saw a clash of business models between short-term time horizons (banking) and long-term time horizons (advice). The outcome was a lack of corporate governance, profit before clients and unethical business practices.
I am certain that the post RC ramifications will be as equally devastating but the real victims will be the consumers.
If all of the recommendations are implemented we will see advice become unaffordable to the majority of Australians.
Australia will develop a two-tier ‘haves’ and ‘haves not’ advice structure, where a small minority will be able to afford advice and the majority unable to do so.
All of these issues will be magnified within regional Australia where there will be a lack of advisers and a deficiency in connectivity.
The Federal Government is going to come under pressure to provide taxpayers access to affordable advice – especially in the areas of aged-care, retirement planning, superannuation, health insurance and debt management.
There is strong evidence that the major players who are pushing for the restructure of financial planning industry believe that face-to-face advice should be only be for consumers who can afford to pay.
The remaining vast majority of consumers will have no alternative but to access advice through impersonal technology i.e. robo-advice etc. The Canberra bubble and self-interest groups have completely hijacked the advice debate and the subsequent decisions have been made with no understanding about the effect this will have on consumers, their needs and affordability.
Government, ASIC and the associations have been so consumed with conflicted remuneration they have failed to understand why commissions were developed to be paid out of product and why this concept came about globally within financial services.
If the decision-makers were genuinely concerned about conflicted remuneration, they could have simply required every piece of advice to be in the best interest of the client and set level commission percentages.
The recent re-election of the Coalition Government was seen as the rejection of Labor’s banning of franking credits for the retrospective nature of the proposed policy.
Will the new Coalition Government apply the same principle and review grandfathered commissions because this is also clearly based on the retrospective nature of changing product design?
The commission in these products had no connection with the ongoing servicing of clients and was developed ‘in product’ because the consumer could not afford / or would not pay for the advice.
Another major consequence and dilemma post RC will be how the advice industry will attract a next generation of advisers as new talent will have the burden of education debt, over regulation, the tarnished reputation of financial services and an unfriendly business environment to contend with.
Instead, university graduates will seek career and self-employment opportunities in other fields. As a cumulative result of these post RC outcomes, Australia has entered into a new era of unaffordable advice – and it comes at a time where the majority of Baby boomers will be entering into retirement with advice crucial for their financial well-being.
To date, the debate around industry reform has been dominated by self-interest. It won’t be long before the extent of self-harm on the economy is realised and common sense will prevail. I am confident that once this realisation is made consumers will have access to affordable financial planning.
Until then, expect pain for all.
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12 September, 2019
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