Gov in denial over industry challenges including unaffordable advice, need for financial literacy education 

| March 10, 2020

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 1133 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 unfordable, but Australia cannot afford to not get advice.