Paul Tynan

The financial services industry dilemma of having sufficient resources and advice practitioners to service the needs of orphan customers is not a new story, it’s a crisis that has been around for years.

If this scenario wasn’t bad enough, the Haynes Royal Commission recommendations that facilitated the introduction of retrospective legalisation served to compound the crisis by accelerating the increase of orphan customers right across the financial services industry.

For example, in the 90’s, the rollover products of the time, had features that not only included nil entry/entry-free access, but also provided the customer the option to pay a distribution cost upfront; or opt for a clawback alternative over a number of years.

By being in the “driver’s seat”, the client could choose to remunerate the adviser upfront or alternatively via an ongoing trail commission arrangement via the clawback option.

I highlight this point because the purpose of trail commission was NOT to provide ongoing service to the client, but the distribution cost associated with the product.

The Haynes Royal Commission highlighted payments of ongoing commission for no service; however, the storytelling inside the Royal Commission was all one-way and failed to properly understand and appreciate the historical and commercial reality of the product design!

Motivated by self-interest and desire to rid themselves of legacy products, the institutions were happy to support this single sided narrative and incorrect reality – and failed to challenge the consumer/industry fund/agenda driven lobby groups.

Professional associations and dealer groups also displayed the same mindset and as a result, collectively – failed both the consumer and advice sector by doing so.

Now we have millions of Australian consumers on platforms, in products and with insurance companies and fund managers who have no access to the much-needed services of professional advisers. They have every right to ask how decades of government led reform and industry rationalisation that was supposed to enhance greater access to advice, deliver better products, reduce costs and improve service has failed them so catastrophically.

The Haynes Royal Commission has resulted in more regulation and over compliance which has seen costs to the customer reach record levels, the number of advisers’ plummet to 15,000 and consumers unable to access and afford advice in an era of legislative and regulatory complexity.

At the centre of this perfect storm were the self interest groups and their fanatical obsession and belief that commission based remuneration structures created a conflict-of-interest situation. This tunnel vision and lack of marketplace awareness resulted in banning of commissions and fast-tracked advice becoming an elitist service that’s unaffordable for most consumers.

It’s common best practice for businesses across the globe to incorporate commission into product development as a means of funding distribution and its associated cost. This structure still dominates many industries including professional services, manufacturing, health, general insurance, motor vehicle, real estate, etc.

The institutions initially benefited as the number of orphan clients grew, and they (orphan clients) became major profit centres. Inside the institutions, orphan clients were referred to as “rivers of gold” as they were a source of a very lucrative administration fee.

These same institutions are now rapidly jettisoning their wealth arms as over regulation has made it too hard to do business in this current environment.

It’s both an indictment and one of the darkest of chapters in Australia’s economic history that so many orphan customers now sit in products without access to much needed personal/professional advice because of the fanatical obsession and lobbying of self interest groups that has ultimately resulted in harming the very consumers they purported to represent.

Furthermore, these same self interest groups view the provision of professional financial advice as a boutique profession that only services consumers who can afford advice.

Looking to the future, Australia will continue to have Royal Commissions; however, if they too fail to heed the lessons of the past, and that recommendations have flow on effects, especially when enquiries are singularly focussed on planner misconduct – the outcome will be yet another financial disaster for the nation.

As I end this commentary, it’s with regret that I reflect on a once viable and thriving profession of advice practitioners that has all but been halved and transformed into a boutique service accessible only to those few consumers who can afford advice at the detriment of the many.

By Mr. Paul Tynan, CEO

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Paul Tynan

Financial literacy is a core life skill that needs to be taught as a compulsory topic in Australian schools.  Although not a new idea, the basics will go a long way to helping future generations make better and more informed decisions that will ultimately be to their long-term personal and professional betterment.

In fact, the decisions made during the pandemic together with the various commitments and promises being made by politicians in the upcoming Federal election…is reaffirming the need for voters to understand how they will be impacted as individuals or business owners.

If there’s one goal that the Australian financial services industry and accounting profession should unite and pursue above all others – it is to have financial literacy included as a compulsory course in the school curriculum.

Leaving school, becoming an independent adult are major milestones.  However, it soon becomes a brutal reality for young adults that they have been done an immense disservice by the school system by not receiving a financial education throughout their learning years.

Of course, there are countless resources online, in print and on video for school leavers wanting to get themselves ‘up to speed’ with financial jargon and latest concepts and offerings to manage their personal finances and commitments.

Financial literacy is a core life skill to successfully participate in an increasingly complex modern society.  So why should young Australians be forced to play catch up with respect to the increasingly complex world of finance and money after leaving school?

On leaving school or care of parents, young Australians need to take charge of their own financial future and to live independently, need to know how to make wise, informed, financial choices for everyday living.  How to manage a variety of risks, save for retirement or an unexpected health or financial dilemma, avoid taking on unmanageable debt, etc.

In addition, financial products and services vary widely and are becoming more complex, choices more difficult and the adverse long-term ramifications more profound if wrong choices are made.

Adding to this complexity are rapid advances in technology and communication that have enhanced greater global connectedness and massive changes in financial options / transactions, as well as social interactions, consumer expectations and behaviour.

While the coronavirus pandemic upended families, businesses, state, and federal economies, at the grassroots level, it also served to highlight the importance and benefits of solid financial habits.

Poor financial decisions can have a long-lasting impact on individuals, their families and society and many were made during the pandemic – especially when superannuation was allowed to be accessed and many spent those accumulated savings frivolously negating the benefit of years of savings and compounded returns.

Furthermore, those with savings and sound financial frameworks were better able to weather the economic impact of lockdowns, being stood down and reduction of business revenues.

With most commitments and promises being made by politicians during elections, it has become an imperative to understand how they will impact the broader economy as well as individuals, their families – and business owners and their employees.

Low levels of financial literacy are also associated with compromised standard of living, increased anxiety, stress on relationships, physical well-being, and greater reliance on government support.

So, is it any wonder that the call for financial literacy to be taught in schools is getting louder?  In fact, the OECD recommends that member countries:

• integrate financial education into the school curriculum
• include financial education from the beginning of formal schooling
• allow for flexible school-based curriculum implementation
• encourage standalone and cross-curricular approaches
• provide appropriate financial and in-kind resources
• ensure suitable involvement of important key stakeholders
• support the education system in the provision of teacher education.

Overseas, Florida became the largest state in a growing trend across the US to pass legislation mandating financial literacy for high school graduation.  Currently, there are 54 personal finance education bills pending in 26 states.

Now, 11 states, including Florida, require students to take a stand-alone personal finance course to graduate and more than 20 other states include some sort of personal finance education in their curriculum in different ways.

Regrettably, although the benefits of financial education can make an immense difference by empowering and equipping Australians – especially young people – government and the education system are dragging their collective feet.

Hence the need for the financial services and accounting sectors to join forces and voice the need to make financial education a critical, on-going inclusion in the education curriculum.

From my perspective, it makes sense to cover topics such as:

• basic understanding on the role of the government and reserve bank in managing economic conditions
• overview of the taxation system
• how the superannuation works
• understanding of basic financial terms: inflation, employment, interest rates, capital, debt (private /public) and savings
• types of employment: employee, self-employed and consultants
• wealth creation through savings and investing
• understanding different investments – Australian shares, property, international shares, cash, bonds, crypto currency, etc
• how the banking system works – including how to apply for loans and credit, mortgages and credit cards
• life insurance and health insurance
• personal & household budgeting and cashflow management
• good debt vs bad debt
• how to get financial advice
• consumer law and protection
• cybercrime – online scams
• estate planning – Wills, receiving an inheritance and related implications.

In this current election environment, we hear every day from our politicians’ words like, unemployment, interest rates and economic management – but our education system neglects to teach future generations these basic financial skills for life.

In closing, financial literacy should run throughout the secondary school curriculum and be integrated into a framework that allows students to gradually build and expand their knowledge.

Just as learning a new language or skill takes time, building financial skills requires time and years to gradually build knowledge, familiarity, and confidence to manage one’s own finances when leaving school and entering adulthood.

By Paul Tynan, CEO

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Paul Tynan

If the future and well-being of consumers is truly the highest priority of the federal government and financial services industry, then the quality of judgment has to improve and decisions made based on the lessons embedded in the experiences of the past.

The future viability of the advice sector is quite literally at the precipice!

Practitioner numbers are at an all-time low; exits and premature retirements continue to mount; and the industry’s reputation and obsession with over-regulation is dissuading new advice entrants.

It’s for this reason, that politicians and stakeholders must ensure that the decisions of the past that has brought about this scenario are not repeated or compounded going forward.

When looking back at history, the litany of disasters has quite literally been horrendous with most catastrophic being retrospectivity.  Basically, a misguided belief that arbitrarily changing the past will improve the present and secure the future.  The reality has been:

Education standards

I’ve haven’t met one person in the industry that does not support lifting standards and the standing of the advice sector with appropriate entry level academic qualifications and ongoing professional development.  However, they should never have been introduced retrospectively.

Remuneration

Whether referred to as commission or brokerage, they constitute the cost of distribution that is incorporated into the product by the manufacturer.  They are not conflict of interest, hence, retrospective banning of commission is wrong.

ASIC (Lookbacks)

ASIC’s preoccupation with lookbacks has resulted in advisers looking over their shoulders like never before and quite literally living in fear.  Bringing down the cost of advice will never be achieved; and will only result in more compliance and administrative imposts.

In all seriousness, no industry should be required to operate under a lookback regime of ten years or more.  Imagine if politicians or the legal profession was required to adhere to the same requirements!

BoLR

Retrospective legislation by government has given the green light for institutions like AMP to change their buyer of last resort agreements resulting in drastically devalued businesses for many advisers.  This has been another decision that further undermined the standing of government, financial institutions and the industry as a whole.

Through no fault of their own; not breaking any rules or doing anything wrong – retrospective law making and arbitrary changing of contractual arrangements has quite literally brought the advice sector to the point of failure.

The purpose of the advice industry is to provide quality advice that is affordable, scalable and is in the best interest of clients.  Consumers have every right to question an industry that for two decades has wreaked havoc on itself, advisers and retrospectively changes rules and overturns supposedly iron clad assurances and undertakings.

We need leadership from both sides of parliament to work together to deliver a sustainable workable framework.  Hence my firm belief that the present structure needs to be reviewed with a view to implementation of the following:

Individual licencing

Move the industry away from corporate structure to advisers operating on a licencing framework that is no different to other professions such as accountants, lawyers, doctors, etc.

Past experience has proven that putting any entity that operates / and is motivated by profit between the consumer and their adviser inevitably leads to a conflict of interest.

The adviser’s sole role must be to act in the best interest of the client, not to a licencing group. The larger institutional licensees have compounded the environment for their advisers by adding extra layers of red tape, complexity and compliance.

Regulation

Regulation and constant legislative tinkering by the federal government has only served to damage the industry and disadvantage consumers by making advice unaffordable.  There needs to be a concerted effort to remove this burden.

Who is the Regulator?

The industry is drowning in regulatory authorities and voices demanding to be heard.  As if FASEA, ASIC, ATO, TPB, APRA, AUSTRAC, ACCC and AFCA weren’t enough, new bodies are being established in conjunction with associations, lobby groups, academia, institutions, industry super, the media and list goes on.

At what point do we say enough is enough!

Too many voices

There are too many industry associations representing the advice industry vying to be heard (and taken seriously) by government. Until these groups unite and merge into a single and powerful representative voice, it will only reaffirm to regulators the fragmented and self-interest nature of the industry.

Statements statements statements

No other advice profession is required to provide so many statements i.e.  annual opt in statement, fee disclosure statement, statement of advice (SOA), etc.  All of which are ultimately paid for by the consumer.

SOAs continue to grow, not because clients read them but out of fear of litigation.

Defining advice

The provision of advice in reality is demarcated into two clear models – Independent (open APL) and Proprietary (can only provide advice on proprietary products e.g. industry funds, bank products).  The formalisation of this distinction would be of most benefit to the consumer and provide greater transparency.

Technology

A failing and legacy of industry domination by large institutions has been a lack of innovation and the restricted application of new technologies.  The advancement and application of FinTech is vital and needed to drive efficiencies and benefit consumers.

Career pathways

How can financial services attract the next generation of advisers when the current pathways actually inhibit new entrants joining the advice industry?  Two decades of non-stop regulatory reform, industry rationalisation and uncertainty has resulted in the next generation of advisers preferring alternate career paths with more attractive work life balance opportunities.

What’s the Answer? Firstly, a combined effort and joint approach by government can halt the demise of financial services and the advice sector.  However, action is needed now with a united effort and joint approach that can create a viable future for the industry and provide affordable advice for consumers.

A good start would be a bipartisan working group NOT comprised of the usual retired judges, lawyers, vocal interest groups and individuals who have no practical experience running an advice business or face-to-face interaction with clients!  It’s for this reason that Australia has a track record of royal commissions and industry reviews failure.

There are many quality advisers who genuinely care about the industry and ensuring consumers receive quality advice and service that would gladly participate in a genuine and inclusive bipartisan review.

Secondly, as the world moves into the new era of the digital age, a national priority has to be raising the financial literacy for all Australians.  People need to be able to manage their financial affairs in order to improve their standard of living.  In addition, it will benefit the economy by improving the strength, performance and efficiency of the financial services system.

I am confident that this approach is the best way forward and would provide the all-important building blocks for a sustainable future for the advice sector – and most importantly – where the consumer will finally be the winner and beneficiary.

By Paul Tynan, CEO

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Paul Tynan

A year after the Hayne Royal Commission, advice industry commentators continue to debate what the advisory sector will look like going forward.  As the debate rages surveys such as Adviser Ratings, reveal a downward spiral with adviser numbers falling to a four-year low in 2019 and approximately 1,133 practitioners exiting industry in the 4th quarter of last year.

The fall out to me is crystal clear – advice is now only affordable to a small minority of Australians and retail advice is not scalable in the current regulatory environment.  Advice is becoming an elitist service.

The big end of town (major banks, AMP and private banks) are moving away from retail advice as red tape and over regulation smothers the advice process.

In addition, advisers are also leaving the industry due to personal circumstances (age, education, health etc.) leaving the remaining practitioners no option but to restructure their business models and only service clients who can afford advice.

ASIC and FASEA shouldn’t get too comfortable as their self-funding models will come under pressure as institutions that unpin their operations are leaving retail advice.

Graduates seeking a career as advisers are being confronted with a multitude of barriers to entry – whilst the challenges facing existing financial planning practices are acting as disincentives to business owners employing new entrants.

The end result being new advisers entering the industry over the next decade will be a scarce commodity and planning practices seeking to grow will struggle to attract new talent.

A recent article in an industry publication with a HR specialist highlighted this issue.  The recruiter revealed that new jobs are only attracting between two and eight applicants, while advice in remediation are attracting up to 300 candidates.  This reflects planners preferring institutional jobs and not self-employment filled with over regulation.

All this is occurring as Baby Boomers transition into retirement.  The impact during this period of transition for the advice industry will be to force individuals, families and mature age business owners to seek unqualified advice from family members or friends.

The other structural failing is that the current education system places no focus on basic financial life skills within the learning curriculum.

The Government Services in Education Report stated that in 2018, Canberra spent $2387 per student a year in government schools.  As well as this, the state Governments also provide funding further supplemented by parents supporting schools through fees.  In this environment, Australian outcome scores in maths, science and reading are worse than they were in 2009.

Financial life skills should be taught from year 7 to 12 to equip students with an understanding of financial services that in turn will support them for their working futures and beyond.

The education system should prepare students with a basic grounding in financial life skills:

• How does the Australian tax system work?
• When is a tax file number needed and how is it obtained?
• How does the super system work?
• Budgeting (financial maths)
• Credit cards, loans and mortgages
• Starting your own business…what’s a BAS statement?
• How does the Centrelink system work?
• Savings vs Debt
• Investment markets (more than just property)
• Diversification in asset allocation

The majority of Australians have very poor knowledge in financial life skills and are living in a debt prism.   Australia has the second highest personal debt levels in the world starting with HECS after completing university studies.  This is then compounded following marriage with debt in the property market on acquisition of the family home before the cycle shifts into higher gear with the cost of raising children – including their education.

Instead of a retirement of financial certainty, mature age Australians in growing numbers exit the workforce still in debt as they have drawn down equity on the family home to fund their children’s education or assist them into the property market.

In the present employment climate, those with 9.5% superannuation have a base for retirement.  However, the current debate between competing political interests about increasing super to 12% is again another example of legislators missing the point.

The only savings that most Australians will have at retirement will be their super.  Super provides them with some compulsory savings within their debt prism.  However, for the self-employed, it’s their business they rely on as the saleable asset to fund retirement.

The future financial viability in retirement is dependent upon not losing your job; not getting divorced; leaving the workforce to raise children, staying in good health, not being made redundant or becoming bankrupt.

This is a snapshot of the debt rollercoaster that the majority of Australians will face – and why financial life skills are now even more important.

The Government hopes that the FinTech industry will develop Robo-advice to help provide advice to the masses.  However, recently several high profile fintech companies have given us a reality check and affirmation that technology-based advice still has a long way to go before its scalable and acceptable to mainstream Australia.

The public and economy will be the big losers in this new advice world, however, politicians and Mr Hayne will be insulated as their retirements are paid by the Australian taxpayer.   Not a bad outcome and thank you for contributing to a fair and affordable advice industry.

Advice is unaffordable, but Australia cannot afford to not get advice.

By Paul Tynan, CEO

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Paul Tynan

Now that we have a new Morrison Federal Government and the implementation of the Hayne Royal Commission (RC) recommendations will be high on the political agenda, what does it mean for the Australian consumer going forward, especially when retirement planning will be so important to the Baby Boomer generation?

Firstly, the RC will see many long-term consequences that will impact the advice industry.

The post-Keating era saw the rise of institutions moving into the advice space.  This period saw a clash of business models between short-term time horizons (banking) and long-term time horizons (advice).  The outcome was a lack of corporate governance, profit before clients and unethical business practices.

I am certain that the post RC ramifications will be as equally devastating but the real victims will be the consumers.

If all of the recommendations are implemented we will see advice become unaffordable to the majority of Australians.

Australia will develop a two-tier ‘haves’ and ‘haves not’ advice structure, where a small minority will be able to afford advice and the majority unable to do so.

All of these issues will be magnified within regional Australia where there will be a lack of advisers and a deficiency in connectivity.

The Federal Government is going to come under pressure to provide taxpayers access to affordable advice – especially in the areas of aged-care, retirement planning, superannuation, health insurance and debt management.

There is strong evidence that the major players who are pushing for the restructure of financial planning industry believe that face-to-face advice should be only be for consumers who can afford to pay.

The remaining vast majority of consumers will have no alternative but to access advice through impersonal technology i.e. robo-advice etc.

The Canberra bubble and self-interest groups have completely hijacked the advice debate and the subsequent decisions have been made with no understanding about the effect this will have on consumers, their needs and affordability.

Government, ASIC and the associations have been so consumed with conflicted remuneration they have failed to understand why commissions were developed to be paid out of product and why this concept came about globally within financial services.

If the decision-makers were genuinely concerned about conflicted remuneration, they could have simply required every piece of advice to be in the best interest of the client and set level commission percentages.

The recent re-election of the Coalition Government was seen as the rejection of Labor’s banning of franking credits for the retrospective nature of the proposed policy.

Will the new Coalition Government apply the same principle and review grandfathered commissions because this is also clearly based on the retrospective nature of changing product design?

The commission in these products had no connection with the ongoing servicing of clients and was developed ‘in product’ because the consumer could not afford / or would not pay for the advice.

Another major consequence and dilemma post RC will be how the advice industry will attract a next generation of advisers as new talent will have the burden of education debt, over regulation, the tarnished reputation of financial services and an unfriendly business environment to contend with.

Instead, university graduates will seek career and self-employment opportunities in other fields.

As a cumulative result of these post RC outcomes, Australia has entered into a new era of unaffordable advice – and it comes at a time where the majority of Baby boomers will be entering into retirement with advice crucial for their financial well-being.

To date, the debate around industry reform has been dominated by self-interest.  It won’t be long before the extent of self-harm on the economy is realised and common sense will prevail.  I am confident that once this realisation is made consumers will have access to affordable financial planning.

Until then, expect pain for all.

By Mr. Paul Tynan, CEO

The post Where to now for financial services post Federal election and Hayne Royal Commission? appeared first on AdviserVoice.

Paul Tynan

The recently released Productivity Commission review of the Australian superannuation industry was written to address political issues with a total disregard for the best interest of members in superannuation funds.

I have worked in the superannuation and investment industry for over 40 years and its ‘Common Sense 101’ NOT to engage in picking winners.

Picking fund performance winners has so many different variables.  Investment funds have different investment styles, asset allocations, benchmarks, research, trading methodology, currency policy, ethical policies, governance policies and access to listed and unlisted investment assets.

Comparing the returns of one balanced fund to another is like comparing apples with oranges.

What about the superannuation investors life time horizon?

A 21-year old should be put in an asset allocation that reflects their time until retirement and their individual risk profile which will be very different to a retired 70 year old investor.

This issue of underperforming superfunds needs to be addressed and these funds need to be made accountable to their members. The industry associations, regulators and government need to apply pressure and incentives for the non-performing funds to merge.

Trustees are legally obliged to act in the best interests of their members but why isn’t this being enforced?

The other major issue highlighted by the Report is the number of investors with multiple accounts.

This issue should be addressed by educating Australians about the superannuation system and empowering fund members to take ownership in managing this matter.  The ATO could be proactive in monitoring multiple accounts.

Financial literacy as a basic life study course should be in all school curriculums and given the highest priority.  The FPA, AFA and other associations should be leaders in this important undertaking along with the government.

What about self-employed Australia?

The majority of the jobs in the future will be self-employed, but both sides of the superannuation politics (industry funds and retail funds) don’t like self-managed superfunds because they lose control of the superannuation assets.

Everyone forgets that self-employed people are not covered by the compulsory 9.5% superannuation scheme and it is imperative that this sector is aware and educated about the importance of superannuation.

The Australian superannuation system is recognised worldwide as a very progressive initiative but now we get a report based on selecting winners for political reasons.

This is simply bad public policy!

At a time when financial advice has never been more important to Australians, the number of consumers that can afford / access advice is in decline due to mounting costs, regulation and client affordability.

Simultaneously, the need to access advice, particularly in the area of retirement and debt management continues to increase dramatically and will escalate even further in coming years.

Hence the need for Australians to be financially literate as knowledge will assist them to take responsibility for their own superannuation assets.

Unfortunately, self interest groups with loud voices continue to dominate the debate and influence policymakers at the expense of the long-term sustainability of the financial services sector – and in turn the well-being of Australians and the economy.

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Paul Tynan

As the federal government, Royal Commission and FASEA continue to reshape the industry and fuel many predictions and much speculation, it’s imperative to take time out to seriously consider the future as the ramifications are so immense.

The industry has seen constant change over the past 30 years which started when Paul Keating created the current superannuation retirement platform. The change that is currently underway should be about putting the client first by moving away from a dual level licensing system to individual AFSLs. This single change will re-energise and refocus the profession, however regrettably this is currently hitting a very major roadblock.

The institutions and ASIC are not embracing this client first principle and pushing back as they see this as losing control and is not in their self-interest.

The number of financial planners that will leave the industry cannot be understated and yet the severe impact it will have continues to be ignored.  It’s the ‘prefect storm’ of mature age planners; education requirements; demands of the industry exam; the demise of Dover Financial Advisers; the Royal Commission; Grandfathering and over compliance / regulation.

Added to this scenario is a total lack of understanding and appreciation of the role and importance of the advice sector that will see an exodus over the next six years of more than 50% of the current force of financial planners.

Their exit will see business valuations plunge in response to a sudden increase in supply, insufficient buyers, limited access to capital that will all combine to produce the ‘perfect storm’ result. The outcome for the advice sector will be the disappearance of three generations of experience and knowledge by 2024.

Some of these planners will return as Relationship Managers to support the buyers of their practices.  Others as coaches and mentors to new planner entrants.

The timing of this self-inflicted disaster couldn’t come at a more inopportune time for the Australian economy and financial services sector as the need for professional advice will significantly escalate as the Baby Boomer generation moves into retirement.

Over the next four decades there will be unprecedented demand for new channels of advice in aged care and residential living; assistance with Social Security and pension requirements; estate planning; exit and succession of SME business owners; and self-funded retirees – all demanding these professional skills and advice services.

I predict that face-to-face advice will boom for those businesses that are left as mature age consumers will prefer not to entrust their futures and nest eggs to robo-advice or other AI generated advice platforms.

Unfortunately, this much needed P2P service will be limited to the 20% of Australian consumers that can afford it.  The remaining and vast majority of consumers will have no option but to revert to robo-advice, new digital advice platforms and social media.

Time and time again – surveys confirm that consumers fare better financially from the benefits of financial planning advice. The current advice framework has left consumers confused with the lack of transparency between advice and product. This has led to a small percentage of Australians being able to afford face-to-face advice.

With all of these proposed changes, the planning industry will struggle to attract a new generation of advice practitioners as the sector will be competing with other industries that have far more attractive employment and career opportunities.

Is it any wonder the non-financial service industries that provide quicker rewards and self-employment opportunities for new entrants will be the beneficiaries?

The financial planning industry has immense brand damage and a long and complicated pathway in order to become a fully qualified.

I have lost faith in the captains of industry and regulators to put self-interest aside and place the welfare of the client first above all.

These decision makers still fail to acknowledge or believe that there is no conflict of interest between advice and product.  They continue to base their business models on size which in turn enables them to use capital and shareholder funds to compensate for bad advice.

An industry structured on these principles is simply unsustainable.

Surely a country that created a world class superannuation retirement platform can create the world’s best advice framework where advice is delivered in a transparent manner based on putting the client first.  I truly hope self-interest doesn’t win as the loser will be the Australian consumer and economy.

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Paul Tynan

As the fallout and ramifications of Dover Financial Advisers (Dover) demise continue to reverberate following the group’s decision to hand back its AFSL and it has exposed the immense flaws in the Australian licensing regime.

It clearly highlights how the current structure favours large institutions and not the advisers and their clients.

Not only are Dover’s former advisers unable to provide advice to their existing clients, they have an almost impossible task of finding a new AFSL within a three-week timeframe.

The normal process when a practice is sold, a deed of release is provided from one licensee to the other with a copy forwarded to the product provider to release remuneration accordingly.  To make matters worse for the affected advisers, there’s no guarantee that product providers will release any revenue – with some manufacturers affirming they have no intention of passing on any revenue at this time.

As if this situation and time-frame wasn’t bad enough and things couldn’t deteriorate any further, ASIC has warned potential AFSL’s that they must be diligent in processing any ex-Dover advisers – further hindering their endeavours.

Is it any wonder then that several institutional dealer groups have said they will not licence or allow their advisers to buy any ex-Dover businesses.

Everyone seems to have forgotten that Dover’s former advisers are small business owners who have staff, families and financial commitments to meet.  Their advisory practices represent a lifetime of effort with the ultimate exit and succession objective being sale of the business to fund their retirement aspirations.

Through no fault of their own, Dover’s former advisers find themselves currently not receiving any income with financial obligations to meet, whilst juggling the dual challenges of finding a new AFSL and then having to negotiate with product providers to release their revenue entitlements.

What did Dover advisers do wrong that warrants this appalling retribution when they are forced to work within a licensing framework that is biased against both the adviser and their clients.

The current scenario is the perfect nightmare for our advice industry.

Who cares about the well-being of thousands of clients, their families and businesses who have lost their advice partner because of the financial advisory sector’s licencing system? Let alone 400 adviser / SMEs and their staff who have effectively become unemployed.

This is not a one-off event. This year I have counselled a number of advisers who have lost their businesses due to the actions of their licensees.  On one occasion, an adviser had self-reported to his licensee about an internal process issue, who in turn revoked his license resulting in the loss of his business and a million dollars of recurring income.

If consumer confidence is to be restored, the entire advice community together with ASIC must work together to support and transition the 400 ex-Dover advisers to new AFSLs.

The silence from our captains of industry has been deafening and highlights the silo mentality that exists within the sector.  But the most damning outcome of this fortress mentality by the industry’s institutions, key stakeholders and regulatory bodies is that their response has been to a focus on self- interest which is not aligned or reflects the best interest needs of the consumer.

I call on ASIC and the industry to work together to ensure the smooth transition of ex-Dover advisers to new AFSLs so that their clients can continue to receive financial advice and service.

By Paul Tynan, CEO

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Paul Tynan

As the Royal Commission into the Banking, Superannuation & Financial Services Industry gets underway Connect Financial Service Brokers (Connect) CEO Paul Tynan said he expects an acknowledgement of the fundamental issues when you combine banking and advice services.

Commenting further Paul Tynan said, “The essential difference is that banking has a short-term time horizon and advice has a long-term time horizon. This most basic of contrasts has been the foundation for disastrous decision making resulting in high profile failings that in turn led to calls and the need for a Royal Commission.

“Furthermore, the five pillars of financial services have served its purpose and is becoming more and more irrelevant with advances of the new digital environment”.

It’s imperative for the future well-being of the sector that the Royal Commission review financial services in its entirety i.e. banks, industry funds, super funds, investment managers, industry associations and regulators.

The next two decades in particular will be uncharted territory for the nation as Baby Boomers transition into retirement and the financial services industry must be ready.

The challenge for regulators and businesses alike is how they deal with this whilst shedding an obsolete structure designed to support product, distribution and third-party participants – while simultaneously developing new frameworks demanded by customers to deliver digital era services with transparency and rigour.

One of the first post Royal Commission casualties will be business advice models based on the ownership of clients.  The transfer of licensing away from the dealership level to the adviser level will also be another inevitable outcome.

With so much at stake, Paul Tynan offers the following observations, comments and recommendations that he will be relaying to the Royal Commission:

The Five Pillars

• Be wary of advice from the sector’s failed captains of industry as they created the vertical integration and bad advice mess in the first place!
• The four major banks should be allowed to merge or sold and foreign institutions encouraged to enter the Australian market.
  AMP’s business model has not delivered shareholder value in 20 years and needs to be broken up or sold to an Australian or foreign entity

Licensing & Advice

• The advice sector’s transition to a ‘true profession’ is now unstoppable and individual adviser licensing inevitable. This simple move would eliminate industry issues like vertical integration, proprietary approved products lists and client ownership issues and lead to greater advice transparency for consumers.
• The advice industry licensing regime must be transparent and clearly distinguishes for consumers the difference between proprietary advice (e.g. bank /industry fund employees giving advice on proprietary product) and non-proprietary advice.
• There needs to be separation of banking, distribution, product and advice.
• Australia has too many industry associations and they should be encouraged to merge.
• The Government has many different advisory boards and it is important that they appoint ‘independent thinkers’ (non-industry insiders) onto these boards in order to get more of a balanced and practical view.
• Buyer of Last Resort (BOLR) arrangements must be reviewed in light of client best interests being enshrined in law.

Education & Ongoing Professional Development

• Academic and ongoing professional development pathways to attract new industry entrants that support consumer confidence must be robust and world’s best practice – professional member associations and government must work together to make this happen.
• There must be processes in place to ensure that the new legally mandated education standards are not exploited by education providers and other third-party groups and conflict of interest needs to be closely monitored.
• Education must utilise and adopt latest digital age and world’s best practice learning processes – however there must be an emphasis on soft skill capabilities.

Lessons Failures & Inquiries

• The industry has an embarrassing litany of failures that have reflected badly on the sector as a whole resulting in immense reputational damage and loss of consumer confidence.
• Far too many of these disasters involved a major bank and confidence will only return with processes that provide greater accountability and penalties.
• Bank lending practices must be reviewed as a priority.  The Storm Financial saga was compounded by CBA’s lending practices. If business
• KPI’s are based on sale targets, bad advice and bad management practices will continue to happen.
• SMEs have been vocal critics citing access to capital and lending as ongoing issues.  The small business sector is the economy’s biggest employer and significant contributor to the nation’s GDP – bank lending practices must be reviewed and competition between lenders must be encouraged.
• The SMSF recommendations of the Financial System Inquiry panel chaired by David Murray AO should be adopted.
• Far too many lobbyists, self-interest groups and associations have been allowed to hijack past reform agendas – this must not occur in the Royal Commission
• Australian Transaction Reports & Analysis Centre (AUSTRAC) must be strengthened and supported as it’s the first line of defence against criminal activities, money laundering, tax evasion, welfare fraud and terrorism.

Other Issues & Priorities

• Other financial service industries with product/commission features need to move to fee for service – lending products, mortgage, real estate and general insurance.
• Superannuation must be used for retirement purposes only and be the cornerstone of Australia’s saving policy.
• A review of GST concessions, negative gearing, estate/death planning tax and the treatment of the family home is long overdue.

The Regulatory Outlook

• Industry regulations must be flexible to reflect the pace of change, challenges and opportunities of the new digital world with capacity to adapt new developments and technologies i.e. blockchain, cryptocurrencies and new asset sectors.
• ASIC needs to have a policy of employing and utilizing individuals who have industry wide experience and knowledge e.g. financial planners, business development managers, accountants and research analysts.

The Brave New World

• It is inevitable that technology will replace some jobs; however, this will be balanced by the creation of new businesses and employment opportunities.
• Australia must stop its inward focus and export its ‘best of breed’ knowledge and expertise to the world – especially to the economies of Asia Pacific.
• The pioneering financial service businesses that take advantage of technology and transfer power back to consumers will be the early winners and trailblazers for the future.

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Paul Tynan

Whether it be the start of a new financial or calendar year, the issues confronting the financial services industry, especially the advice sector, are all the same and actually increasing and intensifying with the vacuum of leadership and direction so clearly evident said Connect Financial Service Brokers CEO Paul Tynan.

Commenting further, Paul Tynan said the long-term role, viability and relevance of licensees has been under constant question and scrutiny since the inception of the advice model. “No matter how often excuses are spun, it’s the potential and perceived conflict of interest of institutions that simply can’t be avoided”.

“From its inception it has been impossible to defend and claim the process is in the best interest of the consumer and provides unbiased / uninfluenced advice when institutions are both the product manufacturer and owner of the licensee. It’s a situation that first evolved from the development of platforms in the 90s that laid the foundation for the current business model.”

However, as the advice sector moves to a ‘true profession’ the only way forward and test for the validity of non-institutional influence is through the eyes of the public – and it is inevitable that individual adviser licensing will be the preferred model.

Ironically the individual adviser AFSL concept will not only be resisted by the institutions because they will lose influence and control of their distribution networks – but also regulators fearing a resultant massive escalation in their workload.

Within the financial institutions the shockwave would literally be deafening as they have always operated in a culture and model driven by control…control of products, clients and advisers with the outcome being the current-day industry dominated by a handful institutions that in turn has seen the demise of competition and product innovation.

Paul Tynan continued, “Yet individual AFSLs would immediately lift the public perception of advice, the industry as a whole and be the catalyst for a revolutionary change to the dealer group model. In order to compete for individual licensees, dealer groups would be required to restructure into ‘best of breed’ support businesses”.

Although there is growing groundswell for self-licencing an unfortunate casualty will be the disincentive for new advisers to join the industry from the resultant non-availability of client bases and the ‘hands on’ experience and expertise that is required to navigate the now immensely complex world of advice.

Many institutions still have in place a buyer of last resort (BOLR) provision; and these too will be hard to defend under conflict of interest / client best interest scrutiny. Then there are the institutions shareholders that are becoming more sceptical and concerned of the real worth of the BOLR to the organisation and if another option would serve their interests better!

“BOLRs by the very nature restrict the movement of advisers and clients from licensees; however, it does give advisers a certainty for the value of their business and lifetime of effort”, said Paul Tynan.

“Although the institutions have been constantly chipping away at the rules, for several of the larger industry players their business models are very dependent on BOLRs. Unfortunately, again it is the would be new generation / entrant that is impacted the most by these BOLR rules that has institutions requiring them to buy businesses / books of clients at inflated prices that do not reflect true market valuation”.

The institutions have invested heavily in platforms and have been rewarded by attracting the majority of investment funds inflows…not to mention they are a great control mechanism that supports their ownership of dealer groups.

“However, times are truly changing and the disruptor across all industries and sectors of the economy is technology that relentlessly challenges business models and out-dated conventions. Platforms and their institution owners continue to be slow to change and advisers are already embracing innovation moving to seamless technology that cuts out the platforms.”

“Smaller nimble players and entrepreneurs have always been the quickest to respond to change and adopt new technology and innovation. It’s hard to see how (and if) the institutions can respond to the new era of change that is driven by client centric business models and technology…unfortunately time is not on their side”, concluded Paul Tynan.

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