How recent changes in the financial advice industry will drive better customer experiences

The financial advice industry has undergone significant changes in recent years, impacting industry operations and future outlook. To date, large institutions and their advisers have accounted for the lion share of the industry, with smaller boutique operations, who focus on client needs, representing a smaller industry footprint.

As many institutions exit the industry, advisers who focus on client needs will move to the forefront, driven by a more competitive industry and better consumer awareness of options and risks.

The financial industry: A study in volatility

Throughout the 1980’s and 1990’s, financial planning resembled a ‘cottage industry’ and was highly unregulated. Regulations in the decades that followed were inconsistent and did not truly curtail the potential for abuse. Advisers required little or no special training to start providing advice and position themselves as financial planners.

As compulsory superannuation fund participation created a new flow of funds into financial markets, institutions began to develop new wealth-related products and vehicles for investment. This resulted in financial institutions falling into the advisory role with little oversight, leaving consumers largely unprotected.

The lack of division between product providers and those who provide consumer advice led to a clear conflict. However, consumers were often under the impression they were receiving advice tailored specifically to their needs without product bias as they trusted institutions in their traditional banker and insurer roles.

Larger financial institutions cornered the majority of financial planning products and schemes, further developing an industry that was failing to regulate itself. Institutions leveraged this opening to charge high fees masked as commissions, leading to eventual consumer outcry and complaints to government regulatory bodies.

Regulatory changes were slow to tamp down consumer distrust

In the wake of the Hayne Royal Commission, financial institutions were severely disrupted and have since reconsidered their position in the market. Although the regulatory change throughout the last decade focused on the protection of consumers, in reality this translated to an increase in the disclosure documentation that was required, leading to weighty advice documents focused more on protecting the adviser than informing the consumer.

The root problem persisted as a large portion of the industry remained product focused and failed to provide client centric advice. Understandable advice reflecting the client’s needs, objectives and concerns remained elusive. The increased regulations to protect consumers failed to serve the purpose for which they were intended.

We are now seeing a mass exodus of advisers from the industry due to the educational requirements introduced in the Royal Commission. Larger institutions have been either exiting the financial advice industry completely, or pushing their clients to reclassify as sophisticated investors, increasing the liability on the investor and continuing on the old path.

The result has been consumer difficulty in overcoming significant industry distrust, due largely to many major institutions closing down their financial planning arms and advisers moving to new positions. Many  consumers  have been left adrift without an adviser, often unaware until they reach out and discover there is no longer support available.

What can be expected from the industry in the future?

Non-institutional organisations, including BDO Private Wealth, have always been client focused but many institutions and their advisers continue to struggle to shift their focus to the consumer.

We are seeing a shift from inwardly focused advisory roles, to a new focus on outward ‘what do consumers need’ objectives. However, the trending ‘one-size-fits-all’ packages are failing to tailor to the individual’s circumstances. There is a clear and urgent requirement for needs-driven solutions over product-driven solutions.

Solutions need to be driven from the perspective of consumer needs rather than the perspective of product providers. The one-size-fits-all approach must give way to tailored, personalised financial advisory packages that allow consumers to access just the services required.

Consumers will not seek advisers who present strictly limited options and seek to lay all the liability at their feet to comply with the letter of the law. Rather, consumers expect a strong array of options, personalised service, tailored and customised packages, and transparency in regard to their adviser’s role. Proof of qualifications is also on demand to fill the advisory role in a legitimate capacity.

Overall, the financial advice industry has transformed into a ‘true profession’ due to educational requirements, leading to better client experiences. This leads steadily to a future where consumers can seek financial advice confidently, secure in the knowledge that their needs and requirements are being overseen by qualified advisers focused on providing superior experiences and best outcomes.

BDO Private Wealth

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