Change should be driven by industry, not regulators

As a part of its wealth management series, Money Management speaks to financial planning groups and asks them to share their views on the industry in a new environment. This month, Money Management spoke to Adrian Gervasoni, executive manager, advice solutions at Industry Fund Services (IFS).

Money Management: What are your general thoughts on the financial advice as an industry?

Adrian Gervasoni: I think for a long time, advice has had a pre-defined definition of what financial advice is and it has very much followed closely how the regulation defines it. So we are probably missing the opportunity to think about advice from the consumers’ perspective – what is that they are really challenged by and worried about, or what help do they need to achieve their goal? 

From a really fundamental perspective, consistent data points that half of all Australians have some sort of unmet advice needs in this space, so there is an unlimited amount of needs out there and we [as an industry] can help solve it.

On the other hand, there is a contraction of the advice industry in terms of the number of advisers exiting due to higher education standards, traditional business models being challenged and unfortunately we have got the supply reducing when the demand and the need for advice has never been greater.

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It is really time for those who want to be in the advice industry to start again and think about what forms of help they want to be able to provide to a customer base they are targeting, and be prepared to try some new things. The advice which is being provided today, serves a small segment reasonably well, particularly those who have portfolio management or advice strategy needs. But in a traditional sense, the advice offerings of today do not serve the people who either do not have the means to pay $3,000 to $5,000 or, more importantly, those people whose real needs are a bit more fundamental when it comes to coaching financial wellness and basically getting organised. We do not tend to have a strong proposition in the advice industry for those more fundamental needs.

MM: How do you think the business model across the industry will evolve and which ones will struggle?

AG: COVID-19 has really shone a light on this in terms of what help people really need and I think most of traditional advice businesses will struggle going forward unless they really rethink the advice proposition that they are putting to their client base. Even the high net worth practices who have been able to increase and consolidate their clients base to get profitable, they will struggle to continue to grow and scale unless they think about the value they are providing to their clients. 

In the past it was portfolio management, managing money, but of course the challenge is now we have got digital solutions and portfolio construction tools that do as good job as an adviser could possibly do, and do it cheaper. If your value proposition is “I am going to pick the right investment for you” then you will probably struggle long-term to maintain a value proposition in that space.

My view is centred on what humans will continue to be challenged by; as humans we are imperfect and we do not make perfect decisions because we are driven by a number of different things when we make a decision. When it comes to managing money, I expect people will always be challenged, so we need a value proposition that focuses on people and how they perceive money and how they are motivated in terms of how they make decisions. 

In our sector, we are dealing with people for who their home and superannuation are their two most significant assets and most of the value we can provide is helping them make decisions through their working life so they can have a much more meaningful retirement.

I think what we place value on at the moment is not in the right areas particularly because technology is increasingly becoming so much better in the advice setting.

Over time we will have a digital journey in which you would put your circumstances in and it will tell you the steps you should be taking, so the question is whether advisers will be out of a job in this future and my short answer to that would be no.

Because we know that digital tools alone will not be enough, they are a great way for people to discover a little bit of themselves and discover what is possible, but at a minimum people tend to like having some validation of the advice.

MM: What do you think is the next ‘big thing’ for the industry?

AG: There is this compelling need now to start from scratch in terms of if you have never known the financial advice market and what it looked like and just thought about the problem that we are trying to solve. That is that a bunch of people who struggle with making decisions, want to have a plan, but do not know quite where to start then you would come up with a different service model. And I think that we would be so well rewarded for spending a little bit more time on that.

We should not be relying on policymakers and regulators to design our service, we should be doing that ourselves so I think that is a big opportunity. There will be groups who look at this and say “actually, we are still centred very much around an adviser and a client having a relationship” and naturally that limits the amount of people that you can help.

The role of digital advice will be significant and needs a strong service model that supports it, but more importantly it will be where technology and humans each need to play a role together, not the one replacing the other entirely.

We are investing in the areas of data management, proposition and experience design, digital advice and licensing, and incorporating member segmentation and experience into advice to mimic what funds are otherwise doing in terms of their member engagement campaign, and advice needs to a part of that.

More recently, we are seeing funds are now looking to their propositions more broadly, and more closely, to integrate the different types of help they provide. That is a good starting point but ideally it will be about how you would have this proposition and would put through a member so that they can discover a little bit of themselves.

Over a number of years there has been a significant change in advice but the change has been done to us. It is not anything that we have driven ourselves and most of that has been the regulatory change. For advisers, the challenge is being on the receiving end of this change and you end up with significant fatigue and also become quite sceptical of such a change whereas if you are in industry that is driving the change, you as a part of that industry, accept that it is something you do to be successful.

We need to be the instigators of industry change as much as it is done to us and that was a sort of a play on taking back some control of what our destiny would be, not allowing it to be purely a discussion around the regulatory environment but also more about our relevance and our value in what we do and how we are going to do it so I think that this is something I know the advisers would be challenged by.

MM: What is your view on regulation across the financial services sector?

AG: Ultimately regulatory reform and better guidance would be helpful and at the moment. IFS is working with the Australian Securities Investments Commission (ASIC) and the industry on a discussion paper on where funds, particular superannuation funds, are challenged by the current regulatory environment and in terms of being able to provide more help and advice to its members. And that has been a really interesting piece of work because it is the gaps and overlap between different regulatory bodies which creates the uncertainty. 

I think that a move to a single regulatory body would definitely help solve some of this and I think the regulatory piece can also be a convenient excuse for why we do not just try different things as well but I still feel there is room for innovation despite the heavily-regulated nature of advice. We do obsess around the big advice, the advice that fits into the statement of advice (SoA) and that is obviously at the core of what we do but we tend to miss at the edges, what are the other areas that we could provide assistance and how that is valued by a consumer. 

I do think that at some point we will need to revisit what we are training for in terms of adviser education standards notwithstanding that it is a good thing of having higher watermark in terms of education standards more broadly but the education framework is really training advisers to be technical experts and that is not a good thing.  

Obviously, you need to be proficient in the area in which you are advising but I think what we are missing is that in time technology would solve much of this.