Do you really think that financial products are the first priority for millions of people who have never learnt to manage their money?
Yesterday I conducted a Zoom Q&A session ahead of the February adviser exam. By way of explaining the overall context of Ch 7 Corporations Act, I said that it relates to financial product advice only. This particular legislation was introduced in 2001 to break the stranglehold that product providers had over financial product-related advice, and to replace the contractual obligation to product providers with a codified fiduciary obligations to clients. To this day, the Act still aims to ensure that advice about financial products is not influenced by the quantum of product provider payments, incentives, or by conflicted relationships.
But this legislation doesn’t apply to any other form of financial education, money coaching, government services consulting, or to a hand-holding financial concierge service.
And then the penny finally dropped!
Realisation that, from an advice provider’s viewpoint, the entire Ch 7 and Code of Ethics is about financial product advice and dealing in financial products… ONLY!
My group of advisers finally realised that the only reason that they have to sit an extortionately priced adviser exam, pay exorbitant ASIC fees and licence fees; observe a best interest duty, or take any notice of the Code of Ethics; or in fact be authorised at all, is because of their long-standing attachment to financial products. It is the very same attachment that drags advisers into Austrac and Privacy obligations. It’s because all licensees are deemed to be Austrac reporting entities, which in turn creates their Privacy obligations.
In the current environment, you’d have to wonder if this blind love affair with financial products is really worth it?
Structuring a business around them is a high cost, high risk enterprise with ever-diminishing returns.
Largely useless industry bodies and ineffective government authorities make millions from advisers while adding little or no value. We have seen off the former government-created and bank-funded FASEA, but not before this blunt instrument showed thousands of advisers the door. The current government for all its verbiage and bluster, is likely to change very little except where it benefits their industry super fund agenda.
And yet like moths to a flame, advisers continue to flirt with financial product advice until finally they are burnt.
Risk insurance and superannuation may have been highly profitable a decade ago, but the prohibitions on superannuation commissions and reductions in risk commission over recent years have ravaged product-related payments as a viable source of adviser income. Many risk advisers are only just managing to stay afloat on their rafts of renewal commission.
The problem today for many advisers is that they don’t know how to do anything else but advise on, or deal in products. Many lack the education or expertise to provide non-product services related to money; and they fear a world where the client, not the product provider, becomes their paymaster.
So now that realisation has dawned that only those advisers who engage in a financial services business (as defined in RG 121.24) are required to be licensed or authorised by a licensee. Everyone else is free to practice outside ASIC’s regime, under the same principles of common law and consumer law that apply to any other type of business.
So if it is possible to disconnect your adviser psyche from financial product, here is a non-exhaustive list of strategic topics that fall outside the ‘financial service‘ definition.
- Financial education
- Cash flow management
- Household / business budgeting
- Financial addiction management
- Government services consulting (e.g. Aged care, Centrelink, Veteran Affairs)
- Retirement planning (non-product)
- Estate planning & important document facilitation
Many of your existing clients might appreciate your expertise in one or more of the in-demand areas above. From your point of view, there would be much less government and legislative risk; and your costs of doing business would slashed to a fraction of what they are now?
And if you took the final step an kissed goodbye to financial products, you could also kiss goodbye to ASIC and your AFS licensee.
It would make such a difference to a huge number of Australians who value financial education, money management, government services guidance and practical money strategies as a precursor to financial product advice.
If you choose this path, you may need to focus on upgrading your education and acquiring the expertise to offer these services. Of course, you won’t be able to call yourself a financial adviser or financial planner. They are restricted terms reserved for relevant providers. You would be a ‘consultant’ or ‘strategist’ or similar.
If you are no authorised for financial products, it would also be wise to establish a referral relationship with a relevant provider for those occasions where you brush up against a financial product issues (except for factual information).
If you would like help to establish your new practice with your old clients (and learn how to attract new clients), join Mentor Circle.