Ten years on, advice reaches an inflection point

We are at an exciting point in the evolution of advice. Over the past ten years, difficult but sometimes necessary reforms have been implemented. The professionalisation of advice has set up advisers for success in the future, and they are central to solving the nationwide problem of providing better access to quality advice to more people.

The Quality of Advice Review (QAR) presents a once in a decade opportunity to reset the financial advice landscape, and help more Australians achieve a better financial future. I say “once in a decade” rather than “once in a lifetime” because so much can happen within a period of ten years.

As BT Panorama celebrates its tenth anniversary, let’s consider some of the major regulatory developments in advice from the last decade.

From FoFA to QAR

Whilst the Future of Financial Advice (FoFA) reforms commenced over ten years ago, the implementation truly took effect from 1 July 2014, when the 12-month facilitative approach from ASIC ended. The FoFA reforms were significant, laying the foundation for the advice ecosystem as we know it today, with the introduction of the best interests duty and the ban on conflicted remuneration operations.

The beginning of the 2014/2015 financial year also marked the commencement of the broad requirement for financial advisers to be regulated as tax (financial) advisers under the Tax Agent Services Act in order to discuss tax consequences of financial advice strategies with clients – a necessary part of the advice process. Tied to this, from 1 July 2016 an unlicensed accountant was no longer able to recommend the establishment of a self-managed superannuation fund. These important changes brought about consistency in who could provide advice, and the relevant standards that apply in the provision of that advice.

We’ve seen changes to the way life insurance commissions are paid, including changes to the level of upfront and trail commissions. We have legislated educational and ethical requirements for financial advisers. From the introduction of mandatory initial education requirements and standardised continuing professional development (CPD) requirements, through to the introduction of the Code of Ethics from 1 January 2020, these professional standards have had a significant impact on the number of advisers who are ready to help serve the needs of the Australian public.

The Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry occurred during 2018, with its Final Report released in early 2019 painting a damning picture of the broader financial services industry. Legislation to implement its recommendations made its way through the parliamentary process over the following years, with perhaps the last of its recommendations finally approaching conclusion in the form of the QAR.

Whilst there has been some disagreement over how the QAR recommendations might work in practice, it is important to note that the proposed changes do not impact financial advisers personally.

More importantly, the recommendations seek to build on the changes that we have seen over the last decade, the professional environment that now exists around financial advisers and the way advice is delivered.

Solving a nationwide problem

Advice reform is coming at a time when a growing number of Australians need access to quality advice. The number of Australians aged 65 years and over is expected to double in the next 40 years; and those aged 85 and over will more than triple over this period, according to the 2023 Intergenerational Report.¹

The ageing population brings with it questions and concerns over longevity.

Part of the solution to the retirement funding gap may be through the development of products. Annuity solutions exist in the marketplace, but historically they were not well understood by the general population. Unless you were lucky enough to lock in one of these products at the top of the interest rate cycle, the level of ongoing payments were not what many had hoped for. Ongoing product development has seen the investment options underlying these products expand, increasing their attractiveness, but there is still a shortfall in their usage compared to the retirement funding gap that will continue to grow.

Coupled with this is the question of intergenerational wealth transfer. In a 2021 report, Wealth Transfers and Economic Effects, Australia’s Productivity Commissioner found that the aggregate value of wealth transfers between 2002 and 2018 was worth around $1.5 trillion. This amount is projected to increase four-fold between 2020 and 2050, as household wealth increases and our population ages.²

How will the wealth transfers occur? Who will get what? And once received, will the beneficiaries know what to do with this wealth?

Growing the profession

Another part of the solution has to be ensuring that we have more Australians choosing a career in financial advice. One recommendation from the QAR is to introduce a new class of financial adviser to provide simple and limited advice.

This could mean an expansion of intra-fund advice offerings to members of superannuation funds about their super.

Alternatively, it could be the development of career pathways within an advice business, providing opportunities for support staff to grow and provide some limited advice to clients on simple matters, allowing the financial adviser more time to focus on holistic advice matters for clients.

Advice businesses may benefit by being able to retain support staff who are looking for career progression. They may also have an opportunity to serve a larger client base, set up succession plans and provide an important service to many more generations of Australians.

When I reflect on the evolution of advice, and the upcoming opportunities for the industry to grow and make an impact in helping Australians secure a better future, I am truly optimistic.

'Ten years on, advice reaches an inflection point' by Bryan Ashenden originally published in Adviser Ratings’ Q1 2024 Musical Chairs Report.

1 https://treasury.gov.au/publication/2023-intergenerational-report
2 Wealth Transfers and Economic Effects 2021, Productivity Commissioner:  https://www.pc.gov.au/research/completed/wealth-transfers, pp. v, 8, 36 and 61.