Dear Treasurer Chalmers,
I was heartened to hear you might be looking for a 'second opinion' when it comes to whether or not to replace the 'best interests duty' for financial advisors with a simpler (read: worse) standard of 'good advice' instead.
So, as they say in the TV cooking shows, here's one I prepared earlier.
And here's another.
See, if an advisor doesn't have to act in a client's best interest, whose interests will they act in exactly?
And if 'good advice' is going to be in the client's 'best interest' anyway, there's no need for change.
Making the "need" for change… puzzling.
I'll give the industry its due – the lobbying has been ceaseless since the 'best interests duty' was introduced. And it might yet bear fruit.
But please, Treasurer, look at that 'second opinion' seriously before you dump it.
There is, though, a sliver of potential compromise. See, the better advisors agree that the 'best interests duty' should be maintained, but they reckon that the bureaucracy and paperwork is the killer.
Paperwork which goes a fair way (but not the whole way) to explain why financial advice is so bloody expensive.
And why advisors are leaving the system. (My accountant gave up his financial planning licence because it wasn't worth the cost and hassle.)
And I reckon they're probably right. At least about the complexity and hassle.
Treasurer, I want to put something to you. Something that the financial advice industry won't, because it's not in their best interest.
But something that is in the interest of great outcomes for the clients of those advisors.
See, our financial system is needlessly complicated. Now, that's complexity that favours our accountants and financial advisors, so they won't want it simplified any time soon.
But it also means that only the wealthy can afford good, ongoing, financial advice.
You're ahead of me, aren't you, Treasurer?
You know that simplifying the law would mean fewer opportunities to game the system, and simpler advice.
See, basic financial advice is very, very simple.
It's only (okay, largely) when it comes to the 'exceptions' that things get complicated.
"But what about Super?"
"Transition to Retirement?"
"Should I have a family trust?"
"What benefits do I qualify for, and how can I structure my finances to get more?"
The list goes on.
Wouldn't you like to be the Treasurer who simplifies financial advice, benefitting millions more Australians?
Wouldn't you like to get snouts out of the trough?
Wouldn't you like to let Australians get on with the rest of their lives, making good financial decisions, and improving their financial lot?
I thought so.
So, Treasurer, here's that second opinion you wanted:
First, close down the loopholes, boondoggles, and minimisation schemes. Fewer opportunities to play silly buggers with tax means fewer reasons to need complex personal advice.
Shut down the 'tax minimisation' industry by removing opportunities for minimisation.
Second, bulk up ASIC's MoneySmart offering. It's great, but it can be even better. Create, free of charge, a set of financial templates that anyone can access by answering a few questions. Four to six of them should be enough, depending on life stage and the answers to those questions.
And, let's be honest, it'll come down to:
– Spend less than you earn
– Avoid consumer debt
– Have a rainy day account
– Save at least 10% of your income
– Invest it – regularly – in broad, index-based, low-cost ETFs for the long term
– As you get closer to retirement, prioritise cash flow over capital growth
Treasurer, that's it, for maybe 90% or 95% of us.
Those people don't need anything more from financial advisors. Which the industry doesn't want to admit – they'd rather lower the hurdles so they can increase the size of their available market!
But the good advisors already know that. They're the ones still doing great business, advising high-net-worth individuals with complex needs. That won't change and those advisors will continue being successful!
But instead of the industry's line of 'let's make sure everyone can pay us for our services', the right answer is 'let's make sure most people don't need our services'.
No, of course, they won't say that. Because it's not in their 'best interest'.
There's that pesky term again.
Third – and I'll give the industry this – some people can do with some 'financial coaching'. And that could be done without giving the sort of 'personal advice' that comes with all the paperwork and bureaucracy.
How? It can simply be done, for an hourly rate, on a question and answer basis. Explaining terms. Answering general questions. Providing interpretations.
Using those MoneySmart templates as a base, there'd be no personal advice, because there'd be no need for additional advice!
Just help in understanding and applying the templates.
For an hourly fee, approximating a doctor's or an accountant's fee.
Simple.
But, Treasurer, you need to grasp the nettle.
Fees and complexity are like bees to a honeypot.
You need to remove the honeypot by removing the complexity.
The finance industry doesn't need more 'helpers' – Australians need more freely available 'help'.
And it's not that hard to do.
It needs a Treasurer who puts the public interest ahead of the vested interests of lobbyists.
So, Treasurer Chalmers, that's it.
That's the second opinion.
The one that is very clearly focused on people, not the industry.
That seeks to help the average person, not line the pockets of advisors.
Every Australian deserves access to quality information, free of conflict (or the risk of conflict), to help them secure their financial future.
That shouldn't rest on lower standards for financial advice. Or large, ongoing fees.
We don't need more advisors.
We need a simpler system with fewer conflicts and more freely available advice.
Over to you.
(Oh, and if you're thinking: "Hey, you guys sell stock-picking services, but you're saying most people should use ETFs", you're absolutely right. I am. We hope we can help people pick stocks if they want to, and if they think it's right for them. But they don't need to. ETFs are great. We don't want members to join us if we can't help them. That's the same approach the financial advice industry should take!)
Fool on!
