Financial advice: giving clients what they need

This article was current at the time of publication.

A client-centric model of financial advice has long been advocated by those calling for reform, but to date, no one has actually asked consumers and small businesses what they need. Until now.

CPA Australia's Value of Advice research has quantified how individuals and small businesses define the scope of the advice they need, whether it be for accounting, tax, credit or financial planning. The scenario is significantly different from what lawmakers have imagined.

Current frameworks focus on legislating the products or are under different regulatory regimes. Meanwhile, consumers and small-to-medium enterprises (SMEs) want to see advice anchored towards their goals of budgeting, saving, and making better investment decisions.

Too many hats for advisers

Those seeking advice don't necessarily differentiate between the many "different hats" that service this advice, says Keddie Waller, CPA Australia's head of public practice.

"When a client sits in front of their adviser, whether it be an accountant or another professional, they don't understand the different licenses or registrations — they just see their needs as functional goals that have to be met and want the qualified adviser to provide advice on how to achieve them," Waller says.

She says people's needs are very much tied to their stage in life and if they are individuals or small businesses, not whether the professional is qualified to offer the service.

"If a client wants to talk about budgeting, the best way to save, options for a potential home loan, if their super is invested correctly for where they are now and ensure they are being tax-efficient, they would need a mortgage broker, financial planner and a tax agent," Waller says

"This is burdensome and why many professional accountants are ceasing to hold multiple registrations and licenses despite their clients' advice needs."

The Value of Advice report surveyed 1200 consumers and 815 SMEs, focusing on the emotional and intangible benefits good advice provides.

Advice brings more than financial security

More than eight in 10 consumers and SMEs said they have had greater peace of mind since receiving professional advice.

In addition, 20 in-depth interviews conducted with businesses and consumers revealed a persistent need for functional, straightforward advice.

The research discovered that for those who received good advice, almost every aspect of their lives improved, from financial security to mental and physical health and family life.

However, not just businesses and individuals are affected by good advice.

For the first time in Australia, the report put a monetary value to the nation if good advice can be universally accessed.

Benefits to the nation

Using 2019 per capita gross domestic product (GDP), researchers found that universal access to properly implemented advice would equate to nearly $24,716 per person, representing an aggregate annual contribution to the nation of $630.2 billion.

"That's obviously a nirvana which can never be achieved, but even if only 10 per cent more of the population accessed professional advice it would have a significant flow-on effect on the individual, the community and the economy," Waller says.

Currently, 39.1 per cent of Australians access professional advice. If that lifted to just 40 per cent, the aggregate benefit to the economy per year would be $9.3 billion.

Waller says: "Our research shows there are clear needs in the community to access advice, and it's [also] clear there are all these regulatory barriers to professionals providing such advice.

"There is clearly an enormous benefit to the bottom line if we can improve the current professional advice environment to support consumers and small business access the advice they want and need.

"Let's not do another regulatory fix based on past events by adding further layers of regulatory patches."

Report recommendations

The Value of Advice report advocates the following to lift barriers to providing professional advice:

• Make advice meaningful to the community, not just the financial sector. Separate strategic advice from the product.
• One regulatory regime. Consumers and SMEs want to access advice from their choice of a professional adviser. To this purpose, a single regulatory regime should be established for professional advice.
• Single code of conduct. This should be a principles-based statutory code, enforced by a single regulator. It must set out a consistent and uniform framework of ethical responsibilities and behaviour. The regulator will monitor and enforce the code of conduct and administer any disciplinary action as a result of non-compliance.
• Individual registration of professional advisers would lead to greater responsibility and accountability, requiring a commitment to integrity, competence, and ethics. It would strengthen the relationship between client and adviser and reduce or remove conflicts of interest between consumers, advisers, and licensees that may arise in the current regulatory context.

Affordable advice

The Australian Securities and Investments Commission (ASIC) has just issued a consultation paper on promoting access to affordable personal advice for consumers.

The regulator is seeking input from stakeholders and industry participants on the issues and impediments to accessing good quality, affordable personal advice.

Submissions closed on 11 January 2021.