The storm that has brewed since the Royal Commission enquiry began has been a spectacle of “Shock-and-Orr” for sure. We have seen everything from forged signatures to “fee for no advice” to client misrepresentation. Clearly a series of controls failed – consistently and simultaneously across different organisations. Central to this mess is the lack of respect for the trust we held in the institutions and people who manage and grow our life savings. I think it is fair to summarise the saga with the phrase “Incentives drive Behaviour”. The bulk of the media focus has been around the lapses in conduct and processes within financial institutions. However, I wondered what role should consumers play in fixing this problem? We Australians pay special attention to the key relationships in life – our life partner, our children, our employer. We acknowledge that there are elements of accountability from all parties involved in these relationships. So, why is it that we spend little time thinking about our money and those whom we entrust it with? While we all hope the Royal Commission, ASIC and others work cohesively to redefine the corporate rules of engagement, I think we as consumers would benefit from playing a more active role in our own financial affairs.
There is hope for financial adviceTo formulate an educated view on the current sentiment, we undertook an informal opinion poll of a cross section of fifty Australians. It turns out, there is still a sense that financial advice is important, which bodes well for the industry. Participants trusted their adviser and seem to have a strong bond with them. In fact, it wasn’t uncommon for the individual to believe that their adviser was honest and that “others” in the industry were perhaps the rotten ones.. Melbourne based Aditi Daware has a young family. She and her husband continue to believe in their adviser and echo this need for honesty and trust. “Being open and honest with your adviser makes the relationship stronger. Also, once the adviser knows that you trust them genuinely, they will assist you as much as they can.” It was heartening to see this connection still exists, but the findings from the Royal Commission have provided a wakeup call for others. There is an awareness of the need for being in control.
Clients want to play a bigger role in managing the relationship and to be empowered in the decision-making process.Michael Light, a long time Sydneysider who has had a financial adviser for over 20 years says, “The current climate demands greater openness from our financial services providers. Consumers should be empowered to question more than ever before, and I think this can lead to more of a partnership relationship than a supplier-buyer one.”
Transparency builds TrustFinancial advice is regulated because financial products are complex, as is the process of defining and achieving one’s goals. Advisers are responsible for understanding our needs and the market to be able to provide guidance on building a financially secure future. In doing so, they need to ensure full transparency in their conduct and remuneration. Perhaps there was a degree of complacency among retail customers in the way they managed the adviser relationship. Most clients would have a detailed initial consultation, receive an advice document (called an SOA), investment certificate or insurance policy, followed by limited and in some instances no service. Our research indicated that clients are now keen to play a more active role in the process. As Dominic Moore, Director of 325 Consulting, says “I think being clear on what you want as the consumer helps narrow the focus for your financial adviser. After all there are many choices they can propose so we are also part of this process, if not more so than they are, given its our money to begin with.” It’s important to trust your partner-in-finance, but as the Royal Commission findings have highlighted, there is no substitute to absolute clarity and transparency in life’s critical relationships.
We need to become more literate, to be aware of the things that we should ask and, in some instances, demand.Australians need to take ownership of the relationship with their financial adviser. Therefore, we would like to encourage the government and other institutions to invest in educating the consumers of their rights. To this end, we make a humble start by suggesting five simple principles if you currently have a financial adviser or are contemplating getting one:
- Build clarity on the scope of advice – ensure you know the services you are supposed to receive and the associated fees
- Conduct regular, if possible quarterly review sessions with your adviser – even if it is an online discussion
- Have your adviser document every aspect of the relationship and every piece of advice, even if it seemed trivial over a phone call
- Ensure that you and your family members know where all your documents are for future reference
- Ensure that you have a good mechanism for tracking all payments, invoices and receipts, even if it is from your super account