Industry will fill the advice void if the government can’t

There is a well-documented disconnect in the amount that Australians say they are willing to pay for advice and what it costs to provide it – even though most unadvised consumers understand the value of advice.

In its Financial Advice Report released earlier this year, Investment Trends found that unadvised Australians would, on average, only be willing to pay $570 to receive help with each one of their unmet advice needs.

Given the same research found there are 11.8 million Australians with unmet financial advice needs of some kind, it’s unsurprising that institutions are looking for ways to access this market.

At the same time, this is the exact segment of the nation that the government said it is targeting with its financial advice reforms.

In his announcement of the government’s response to the Quality of Advice Review (QAR) almost a year ago, Financial Services Minister Stephen Jones made it very clear that the government is trying to plug the advice gap.

“Financial advice has become subject to greater regulation to prevent the worst outcomes and to shift the advice industry away from being a salesforce and towards being a profession. We are not going to reverse course and return to the bad days,” Jones said last December.

“If the goal has been to protect Australians from bad advice, we have been pretty successful. But in the process of protecting Australians from bad advice, we have also protected them from good advice. Worse still, nature abhors a vacuum.

“Which means that consumers fill this advice gap through other means. Reddit. TikTok. YouTube. At best, consumers are exposed to unregulated advice. And scammers, at worst.

“We know that investment scams are responsible for around 60 per cent of losses reported to Scamwatch. This is only the reported figure and likely to be higher. Simply put, the lack of access to quality advice can lead to consumer harm. So, we need to make it easy and safe for consumers to access high-quality advice and information.”

The minister’s preoccupation with scams, something that the end of that quote presaged, has been noted as a potential distraction for the minister.

Namely, speaking to ifa last month, the CEO of the Financial Advice Association Australia, Sarah Abood, said she hopes Jones’ recent focus on scams isn’t coming at the expense of the Delivering Better Financial Outcomes progress.

“Scams are uncontroversial, no one is going to say, ‘I think you’re being a bit too hard on scammers, you have to lighten up’. So, it’s more straightforward in policy terms,” Abood said.

However, as he noted back in December, the link between the lack of advice and consumer harm should mean that a focus on one should lead to action on the other.

The reality, however, is different, with the opposition’s running tally of days since Michelle Levy delivered the QAR final report moving beyond 650 days last week.

In a statement marking the occasion, shadow financial services minister Luke Howarth accused the government of not only failing to reduce their costs, but also leaving the financial advice sector mired in a “hot mess” of legislation.

Howarth argued that over the 650 days since receiving the final QAR report, the government has diluted Levy’s key recommendations, botched the initial round of reforms, and stalled on implementing critical red tape-cutting measures.

“Like most of its financial services reform agenda, advice reforms have been left to the last minute and are clearly not a priority for this government,” Howarth said.

The combination of delays and the prospect of a more accessible landscape for digital advice tools has, unsurprisingly, prompted some activity in the space, such as Colonial First State (CFS) launching an $88 per year digital advice solution for members.

According to CFS superannuation CEO Kelly Power, the move is a response to a “clear demand for more guidance and advice and for interactive tools to allow members to better understand their circumstances and take action as they seek to remain on track with their goals”.

“Helping more Australians access advice earlier will have the added benefit that they will be more likely to access professional advice later in life as their needs become more complex over time,” Power said.

The refrain that these lower cost, more limited solutions will lead to more clients eventually getting holistic advice is a common one, and cynics may consider it a platitude. But that doesn’t mean it’s not true.

Regardless, if the government continues to drag its feet on implementing substantial reforms to bring down the cost of advice, more players will target the lower end that are priced out of professional advice.

Whether this is a positive remains to be seen.