In the past, I have written about how the financially disadvantaged in our communities are the demographic that would probably benefit most if they were able to access affordable financial advice services. However, the costs of such services are so expensive that it has effectively been priced out of the reach of those who need it most: the young, vulnerable and working poor. (See: Government enables Australian Banks to target Disadvantaging, Vulnerable Youth & Working Poor).
The high-price factor is due to the massive costs associated with unnecessary, excessive and ineffective legislation, compliance, regulation, governance, licencing etc. plus the expense of supporting multi-layers of inefficient reactive government enforcement agencies/bureaucracy. The whole structure is broken because the system favours the wealthy and ‘enforcement’ is incapable of preventing those who are not members of the industry (i.e. the unlicensed criminals) from ripping off consumers, which is the main source of losses.
When will policymakers realise that new legislation does not make criminal activity more illegal, when it was illegal in the first place. So whats the point? The impact of more legislation is simply that it causes additional compliance obligations, which increases the cost for honest business operators, who pass on the added expense to consumers, pricing services out of the reach of those who need it most. (It won’t change the behaviour of criminals)!
This knee jerk response from Government is a case of being seen to be doing something because they are not prepared to acknowledge that government compliance agencies have failed to enforce the existing laws. The reality is enforcement agencies are not doing their job to identify criminality. The bureaucracy is such a protected species who align themselves with Government, while pointing the ‘finger of blame’ at industry in order to hide their incompetence. So as a consequence all we get is more costly ineffective compliance and regulation.
Would it not be better if the industry, the policymakers, the enforcement agencies and even the product providers and ratings agencies all worked together for the benefit of consumers, rather than the opposite: instead of all the parties being ‘hostile’ with the industry isolated. As a result, the product providers and rating agencies are taking control of the industry unabated, yet no one is receiving the right advice and consumers are the losers. What a mess!
Mind you, the Financial Services industry has not helped itself. Those representing the industry have the difficulty of managing a weak and indecisive body that has limited influence, direction and control. They busy themselves trying to convince the public that they are a Profession, not an Industry, desperately trying to pitch the ‘value of advice’, yet deriving little revenue from it. In reality, they are lorded over by their commission-driven masters, the product providers, who actually pull all the strings. Finance advisers are just facilitators for the Product & Platform providers, Insurance companies and Fund Managers, predominantly controlled by the five major Australian banks.
As with all business models, the emphasis is always on what drives revenue and the problem for the advice industry is that they just can’t sell ‘advice’ as a value proposition. The pity of it is that, in truth, the right strategic financial advice is the most important and essential cornerstone to successful planning and should always be the first step. A consequence of appropriate advice may, at a later point, involve some type of investment product but unfortunately the forces that control and drive the industry influence the wrong behaviour (and therefore the wrong outcomes) as the weak advice industry allows the ‘trail commission tail’ to wag the dog; yet one cannot do without the other unless you sidestep regulatory protection altogether, which is exactly what has started to happen.
The Government needs to look at measures to abridge the present prohibitive governance and compliance red tape, as these costs make the provision of services unaffordable for consumers and unviable for the advice industry. Something must be done to preserve the advice industry, if not, control defaults to the Banks and insurance companies, and that would be like giving the foxes the keys to the hen-house. Another consequence of the ludicrous levels of Government compliance, regulation and bureaucracy is that the product providers are finding new ways to move their wares without providing appropriate advice i.e. avoiding the industries’ compliance regime.
A perfect example of this is the personal insurances industry. You don’t have to watch too much free to air television to notice that in recent years we have been overrun with commercials for all types of personal insurances. The reason for this is simply that the insurance industry had to find a new ways to move product when the ‘advice industry’ stalled due to bureaucratic and regulatory overload and Government indecisiveness.
The problem with mass product marketing is that consumers end up with the level of cover that they want, not what the need! The outcome is that most consumers are now significantly under-insured, or have no insurance at all. Many are paying for cover they don’t need or have the wrong policies.
These policyholders are then conditioned to believe they need to increase their cover (and premiums) annually by some obscure or irrelevant indicator such as CPI, when in reality they should be reducing the amount of cover in line with their needs, which generally declines annually as we gradually approach retirement (the obvious exception being Income Protection Cover).
Something needs to change in order to make financial advice more accessible for those who clearly need it most. Otherwise unscrupulous product providers and their enablers in the media will continue to take advantage of the financially vulnerable.
Unfortunately, Governments use the passage of legislation as a benchmark of their success; they actually need to reduce the red tape around compliance if they really want to assist those consumers needing help. That’s counter-intuitive and therefore a major hurdle as it’s a concept that is extremely difficult for Government to grasp. They all need to stop making the finance advice industry the enemy and engage with them to find a workable solution for those who currently cannot afford these types of services.
I’m not against regulatory controls, but it only works if enforced, otherwise it just increases the cost of services and makes it impossible for the industry to reasonably compete against unlicensed, dishonest and fraudulent shysters who continue to rip consumers off carte blanche. The Government, compliance agencies and the industry all need to start working together for the benefit of the consumers. What a novel idea!
The conventional view serves to protect us from the painful job of thinking. – John Kenneth Galbraith.
23 February 2017