Aimed at financial advisers, the investment community and consumers, Wicked Problems: Visionary investors brings together industry experts to discuss some of Australia and the globe’s most wicked finance problems.

The program forms the media vehicle behind a collective of like-minded individuals from the investment community who are deploying billions of dollars into solving problems like climate change, sustainability, accessible financial advice and protectionism.

Many people are not accessing financial advice because of several perceived barriers, whether it’s not being able to afford it or thinking that financial advice is not for them. Since most people who seek financial advice are high-net-worth individuals, there’s a large portion of Australians who are missing out on much-needed advice.

With an unstable economic landscape in a post-pandemic world, access to good financial advice is needed more than ever. Steve Davison, Chief Commercial Officer at Midwinter is pleased to support and participate in this conversation along with Sarah Abood, CEO of the Financial Planning Association of Australia.

“We are pleased to be the foundation partner for the first two episodes which focus on how to make good financial advice more affordable and accessible to Australians,” said Davison. “Over the past few years, declining adviser numbers and increasing input costs have meant most Aussies are essentially priced out of the advice market. Leaning on the proposed changes in the Quality of Advice Review and Midwinter’s digital advice capabilities, we are on a mission to change this by providing advisers with the technology they need to provide affordable advice solutions.”

Watch episodes 1a and 1b below or find the full series on the ausbiz website.

Wicked Problems: Visionary Investors Episode 1a

Wicked Problems: Visionary Investors Episode 1b

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The Quality of Advice Review proposes reforms to simplify the regulatory framework to better enable the provision of high quality, accessible and affordable financial advice for retail clients.

As outlined in our submission* to the Quality of Advice Review Proposals Paper consultation, we believe the proposed shift to regulate the outcome of advice rather than the process, with a focus on providing ‘good advice,’ is a more effective way to serve consumer needs and will facilitate innovation around how advice is provided. Technology will be pivotal to enabling this innovation and achieving the objectives of this review – to better enable the provision of high quality, accessible, and affordable financial advice – as well as supporting the health of the financial advice profession.

We support the removal of general advice and agree that individuals and organisations providing financial advice should do so within a suitable regulatory framework. Any information that falls outside this framework (a broadened definition of personal advice) does not need to be regulated, as doing so creates unnecessary risk for organisations, and a barrier to useful information and guidance for consumers.

In addition, we agree that the current SOA is a burden to advice providers, and it is questionable that it provides much, if any, value to consumers. We welcome the proposal to remove the requirement to provide an SOA and allow advisers to provide advice in the way that best suits their customers. However, we believe consumers will still want – and need – to be provided with an artefact, as a record of their engagement with a financial adviser, with the primary objective being to inform and explain the advice provided and demonstrate its value. Enabling advice providers to issue this information in a more user-friendly manner will support efficiency in demonstrating and recording the provision of good advice, leading to a better and more informative experience for consumers.

We see the shift to focus on consumer outcomes as a positive way forward for the industry, but only if advice providers are confident that they can invest in the innovation to provide ‘good advice’ rather than risk mitigation and compliance. This will reduce the need for RegTech solutions to manage complicated processes and open a path for increased innovation and differentiation around advice provision and the consumer experience.

The review has been deliberate around encompassing all advice providers. Broadening the scope of organisations that can provide advice is an opportunity to fill the consumer advice gap.

If the proposed reforms pass, superannuation funds, banks, other financial product providers and new entrants have an opportunity to become key players in the provision of financial advice. This will only work if these organisations have confidence that they can invest in and manage the risks inherent in providing personal advice.

Should these organisations enter (or re-enter) advice – which will become more viable if the proposed reforms move forward – there is an opportunity for relevant providers to differentiate from non-relevant providers through market forces as opposed to regulation. This may be analogous with the independent financial adviser segment in the US that have fiduciary obligations to the client.

Midwinter believes that if the proposed changes pass, advice businesses will need to innovate and may need to accept additional business risk to be competitive. Pleasingly, the proposed reforms will support increased digitisation in the advice profession. Midwinter has already built and is continuing to develop new digital client facing technology that will support consumer engagement and ‘good advice’ outcomes through access, transparency, education, and increased adviser efficiency.

The future of the advice profession is a hybrid model, combining digital and adviser-led interactions. Digital technology will provide advice for simple consumer needs and support interactions with professional advisers. All advice providers could benefit from a single advice engine that can service all types of advice and channels including general information, self-directed, intra-fund, and comprehensive advice, leveraging efficiency and risk reduction from common components which can be tailored to different audiences or individual situations.

You can find out more about the Quality of Advice Review, on the Treasury website.

*Midwinter Financial Services Pty Ltd (Midwinter) is wholly owned by Bravura Solutions Limited (Bravura), a provider of wealth management software solutions in Australia, including in the areas of superannuation, advice, and customer engagement. Midwinter’s submission to the Quality of Advice Review Proposals Paper consultation was made as part of Bravura. You can download Bravura’s official positioning statement on the Quality of Advice Review Proposals Paper here.

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The advice opportunity is huge.

Only 1.8 million Australians, or 10% of adults, receive financial advice, according to the 2021 Investment Trends Financial Advice Report. A further 12.6 million people have unmet advice needs and 3.2 million want advice but are discouraged by the perception of high fees.

The industry has a compelling proposition for ongoing personal advice but has been unable to develop alternative options.

But the Quality of Advice Review may be the catalyst for change, with Treasury signalling its intention to make the regulatory framework more supportive of new forms of advice.

Part of that includes a review of the definitions and requirements for general versus personal advice.   

When it comes to general advice, many advisers are (understandably) scared to seize the opportunity.

A key aim of the Quality of Advice Review is to improve understanding of the different regulatory requirements for general versus personal advice, so providers of advice can easily distinguish between the two.

Treasury recognises that this is likely to have a significant impact on advice affordability and accessibility by giving advisers greater confidence to pursue alternative advice models.

The Quality of Advice Review Issues Paper states: “Broadening the scope of general advice is likely to increase the amount of advice that is provided to people, due to the lower cost of providing general advice relative to personal advice”.

Theoretically, there is nothing stopping advisers from giving general advice now.

However, if advisers want the status bestowed by a profession, a scalable personal advice model may provide a more appropriate solution.

Advisers could offer digital advice for consumers with simple advice needs or improve the efficiency of delivering holistic advice through digitising the advice process.

Some advisers are already doing this, using technology to drive efficiencies and scale, but most are yet to grasp the full potential of extending their customer value proposition so that it truly puts them and their advice directly in the hands of their clients.

Waiting for the Quality of Advice Review Final Report due in December – then waiting for enactment of any subsequent regulation or legislative changes that may or may not happen – is simply kicking the can down the road.  

Advisers serious about growth can take steps now to scale their personal advice offering and meet evolving consumer needs.

Even if Treasury’s recommendations are favourable and the government implements reforms in a timely fashion, there is no such thing as a silver bullet. Like today, there will remain a degree of business risk in interpreting regulation and legislation.

Therefore, advisers should be taking action now to adopt technology that can drive efficiencies in their business, automate repetitive low value tasks, and increase their capacity to help more clients.

With adviser numbers falling, and a global skills shortage making it hard for businesses to recruit talented people, a supply and demand crisis is on the horizon.

In order to thrive, advice businesses need to get creative to increase their capability and capacity to provide advice.

If advisers don’t step up, the void will be filled by product manufacturers, finfluencers and social media, further undermining the importance of advice as a profession.

Technology holds the key to a scalable, compliant solution and there are already solutions available.

This session provides attendees with:

• An overview of general advice versus personal advice;
• Summary of key interim findings from the Quality of Advice Review;
• Understanding of the general advice opportunity and potential threats;
• Examples of how technology can help advisers drive business efficiencies and build a profitable scalable personal advice solution; and
• Midwinter’s vision to deliver technology that supports the way forward for advisers.

You can find the full conference agenda and details of Steve and Stacey’s presentation on the AFA Thrive website: www.afaconference.com.au/program.

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General advice may help you reach a broader audience, but personal advice provides a better way to meet client needs, drive business growth and manage compliance risk, according to Midwinter’s Chief Commercial Officer Steve Davison.

There’s a difference between general advice and personal advice. The problem for the industry is the consumer doesn’t appear to care and the line separating them isn’t always clear. A 2019 research report commissioned by ASIC found that consumers find it difficult to understand the difference between general and personal advice, even when it is explained[1].

The paradox for advice providers is that general advice – which must not consider a consumer’s personal circumstance or make product recommendations – is at odds with the goal of personalisation for client experience, marketing and providing financial help.

The rule of thumb that general advice is easier to provide and promote to a wide audience has been challenged. ASIC’s case against Westpac is one of the few examples of case law in this area[2]. It suggests the scope of general advice may be narrower than first assumed and that financial services are to be provided efficiently, honestly, and fairly[3].

Arguably, general advice has become too generic to be relevant to consumer expectations for guidance and help.

For advice providers, the restrictive boundaries and business risk of providing general advice mean the commercial returns may no longer outweigh the costs of providing personal advice. It is now accepted that personal advice remains even more difficult to produce because of the administrative burden; it is strangled by excessive regulation and red tape, making it expensive and putting it out of reach of most ordinary Australians.

Treasury has been tasked to review how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors as part of the Quality of Advice Review[4].

With a report from the Quality of Advice Review not due until 16 December 2022 and no certainty about when potential regulatory changes would come into effect, the industry should not wait for regulations to catch up – there are already options in the market seeking to make a difference to consumers and advice providers’ needs around personal advice.

The right technology can make personal advice very efficient for common use cases – covering the needs of many Australians – and digital has the potential to become the go-to channel for these needs.

Consumers often wait to build their wealth, and with it their financial confidence, before seeking professional advice. Access to an affordable entry-level advice option could encourage consumers to seek personal advice at an earlier stage. With financial products so readily accessible, helping consumers get strategic advice before purchase may be a small step to improved financial decisions.

Some superannuation funds and fintechs are already using digital advice technology to offer online and adviser-supported statements of advice. Midwinter’s digital advice technology underpins these types of services for some of Australia’s largest superannuation funds.

Advice providers can use this technology to offer their clients more efficient, simple personal advice that is digitally engaging and may just set them on a path to building a longer-term relationship over their lifetime. Digital advice technology also improves the efficiency of their entire advice process, from collecting client data to automating statements of advice that address the client’s circumstances and objectives.

Few advice groups and wealth managers are doing it today because they aren’t ready to invest or have become inherently conservative after years of excessive regulatory oversight. The unfortunate reality is, they are passing up an opportunity for significant growth.

A more efficient way to provide personalised advice could also help onboard a new generation of younger clients that do not yet have substantial assets but are set to spend or inherit trillions of dollars from their Baby Boomer parents[5].

These investors could benefit from advice but are often turning to less-than-optimal sources.

About 3.5 million (or 17%) of Australians aged 14 and over say they have been asked for financial advice by their friends or families, according to Roy Morgan research^[6].

‘Finfluencers’ and social media sources are becoming a go-to source of information for generation Z, millennials and first-time investors. The reach of these unlicensed individuals has become substantial with ASIC now taking a closer look at their activities and warning companies to be mindful of regulatory risks when engaging the services of finfluencers[7].

These sources of financial information – or misinformation – are ultimately a form of competition, and whilst regulation may reduce the chance of poor advice, the alternative is to ensure more people seek good personal advice and the consumer protections it affords.

Advice providers can differentiate from the finfluencers by pre-emptively moving ahead of possible regulatory changes and help existing and prospective clients before they turn to friends, social media, or simply choose to go it alone.

A digital advice journey enabled through Midwinter’s software can provide personal advice around a specific topic such as retirement or insurance and is an ideal introduction for younger consumers, or those new to financial advice, who often have simple or single-topic advice needs.

By providing an accessible digital advice offering, businesses can minimise a clients’ reliance on alternatives such as general advice – or the sometimes-questionable information [advice] from finfluencers and chat rooms – helping their brand differentiate the substance of their offer.

The businesses that adopt digital advice technologies now may find they have a significant head start – and thus advantage – over their competition.

Steve Davison is the Chief Commercial Officer at Midwinter Financial Services. To find out more about Midwinter’s financial advice software, head to midwinter.com.au or contact sales@midwinter.com.au.

[1] ASIC Report REP 614 Financial advice: Mind the gap. https://download.asic.gov.au/media/5054882/rep614-published-28-march-2019.pdf

[2] 21-013MR ASIC successful against Westpac subsidiaries’ appeal to High Court | ASIC – Australian Securities and Investments Commission. (2021, December 03). Retrieved from https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-013mr-asic-successful-against-westpac-subsidiaries-appeal-to-high-court

[3]Mills Oakley, Personal advice and ethics – crossing the line? (ASIC v Westpac Securities). https://www.millsoakley.com.au/thinking/personal-advice-and-ethics-crossing-the-line-asic-v-westpac-securities/

[4] Review of the quality of financial advice, Draft Terms of Reference, December 2021. https://treasury.gov.au/sites/default/files/2021-12/c2021-224992_qar_draft_tor_final.pdf

[5] No More Practice – Wealth Transfer Report. August 2017. Retrieved from https://www.nmpeducation.com.au/wp-content/uploads/2017/08/McCrindle-No-More-Practice-Wealth-Transfer-Report-2017.pdf

[6] Roy Morgan, 3.5 million Australians are ‘trusted advisors’ for finance and investment decisions. https://www.roymorgan.com/findings/7834-finance-trusted-advisors-201901110042

[7] ASIC Media Release: 22-054MR ASIC issues information for social media influencers and licensees:  https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-054mr-asic-issues-information-for-social-media-influencers-and-licensees/

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The number of Australians who have or will soon have access to digital advice through their super fund and Midwinter financial advice software now stands at almost three million.

That figure has almost doubled since January 2020[1] as super funds have focused on boosting member engagement and retention in the wake of new regulation.

Yet many funds are yet to respond with a digital advice solution despite rapid changes across the industry. They risk being left behind as record merger activity quickly reshapes the sector.

Digital advice becomes imperative

Many smaller funds or underperformers are merging with larger funds, which is creating newfound scale benefits in the wake of the Your Future, Your Super (YFYS) regulation.

There were 15 mergers announced to the market in the year to October 2021 – the most activity ever seen in a single year – and that pace is expected to accelerate[2].

To be competitive, these funds need to find new ways to engage their hundreds of thousands of members at scale.

If these members are not engaged, they may switch to another fund or make poor investment decisions. For example, a significant number of members switched to more conservative investment options when the COVID-19 downturn struck in early-2020[3] – they then missed out on the quick rebound.

Digital solutions, which can deliver quality advice in a scalable fashion, are a key part of the solution, helping improve member personalisation and maximising their retirement income.

Consumers have become accustomed to seamless digital experiences and are increasingly demanding them.

For example, more than three-quarters (77%) of Australians aged 65 and over were using online banking at June 2020 compared to 59% just three years earlier, according to ACMA[4].

The ability of consumers to extract even more value from digital services is also increasing as Consumer Data Right legislation gives Australians the right to share their data between service providers to find the best service.

It already applies to banking and is expected to eventually include super, providing another prompt for funds to increase member engagement.

Watch: Midwinter Financial Advice Software for Super Funds

Roadblocks to digital advice removed

Super funds are in a strong position to offer digital advice services, given people want solutions from the major organisations they already know and trust. But digital solutions must be cost-effective, compelling, and engaging.

Some funds have been put off by past digital transformation projects, which have taken a huge amount of time. That is no longer the case with digital advice. What can be achieved through advice software as a service is significant given advances in technology.

Open APIs make integration with existing ecosystems simple. Digital advice can be tied to the registry making straight through processing of advice a reality. Scalable and repeatable digital advice services create operating model efficiencies.

Digital advice can also ensure that personal advice remains fully compliant – the technology takes members along a pre-determined advice path and a Statement of Advice is automatically generated.

This technology forms a platform for all advice – it powers digital advice, online calculators, and the platforms used by in-person advisers. This ensures the same underlying quality, whether the advice is intra-fund or holistic.

Digital advice is no longer an either/or proposition working against in-person advisers. Digital advice can serve as a gateway to an in-person adviser when the time is right – when they need more advice or approaching retirement. A US Vanguard study recently found that 88% of digital-advised clients said they would be willing or extremely willing to work with a human adviser in the future[5].

Digital advice acknowledges that funds can’t possibly serve every member in person and not every member can afford the higher cost of a full financial plan.

Some member cohorts, such as Millennials, may prefer to interact through digital channels rather than in-person. This is crucial for the future growth of funds given younger members are often the least engaged with their super.

Digital advice is becoming a standard component of an increasing number of super fund services. It can boost engagement and member retention, while improving the retirement outcomes for Australians.

To find out more about Midwinter financial advice solutions for super funds, click here. Midwinter is a part of Bravura Solutions Limited; to find out more about Bravura visit bravurasolutions.com.

[1] The number of members reached through Midwinter digital advice solutions has risen from 1.61 million at January 2020 to 2.97 million at March 2022.

[2] The Future of Superannuation | J.P. Morgan Australia. (2022, April 07). Retrieved from https://www.jpmorgan.com/solutions/cib/securities-services/future-of-superannuation-report

[3] Box C: What Did 2020 Reveal About Liquidity Challenges Facing Superannuation Funds? | Financial Stability Review – April 2021. (2021, April 08). Retrieved from https://www.rba.gov.au/publications/fsr/2021/apr/box-c-what-did-2020-reveal-about-liquidity-challenges-facing-superannuation-funds.html

[4] The digital lives of younger and older Australians | ACMA. (2022, April 07). Retrieved from https://www.acma.gov.au/publications/2021-05/report/digital-lives-younger-and-older-australians

[5] Robo or human advice? Investors want both in one place. (2022, April 07). Retrieved from https://advisors.vanguard.com/insights/article/roboorhumanadviceinvestorswantbothinone

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Joining host Neil Griffiths, in this podcast Steve gives his take on the current state of accessibility of advice, what the biggest challenges are moving forward both for the industry and consumers, and what regulators can do to improve access to advice.

You can listen to the full podcast on the ifa website.

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Many people who could benefit from financial advice are currently not accessing the services of a financial adviser.

There are plenty of possible reasons, but consumer perception of the cost, usefulness and value of financial advice are consistent barriers.

A survey by the Australian Securities and Investment Commission revealed that 35% of respondents who had not recently received financial advice perceived it as too expensive, 29% thought their financial circumstances were too limited for it to be worth getting financial advice and 18% did not see the value of consulting a financial adviser.

Many participants held broad notions of who could provide financial advice, with sources including family and friends (31%) and information on the internet (23%). This is consistent with earlier Roy Morgan research that identified many Australians are turning to friends and family instead of a professional adviser. More recently, online sources such as Reddit are emerging as platforms for people seeking financial advice.

When considering why people turn to alternate sources of advice, removing the perceived barriers to professional advice is one way to tackle the trend. This can be done by demonstrating value early, tangibly showing that good advisers have a client’s best interest at heart and making it simple to access advice from sources available at your fingertips. Such small, but significant, steps could help more people take action to improve their financial position.

Arguably, general information, or potentially unregulated advice, plays a role in generating interest and education. However, in the wrong context it could be financially damaging to someone’s individual circumstances and objectives. Prevalent themes in behavioural economics show that humans tend to overestimate our decision-making ability, discount the future and fear loss; all of which work against how we make decisions in the area of our own financial planning.

So how can the advice sector win the hearts and minds of more Australians?

Education and action are key to change

The paradox of advice is that many people do not believe it’s for them; they believe financial advice is something only suitable for the very wealthy. Although the perception of advice is that it’s too expensive, the simple tenant is the earlier you start, the more you benefit from the additional time to build net wealth through a cumulative set of good financial decisions.

It’s easy to understand why consumers may be sceptical of financial advice. There are often large up-front fees required to engage an adviser and no perceived benefits gained for a long period of time. Even when the benefits do eventuate, the exact value added by the adviser is often subjective and hard to demonstrate.

This is compounded by low levels of financial literacy – almost half of Australian adults are considered financially illiterate.

An ANZ survey of adult financial literacy in Australia suggests programs seeking to improve financial literacy can be more effective if they look beyond information to ways of engaging people and building ‘self-efficacy,’ and lessening the stress that many feel when dealing with money.

Simple and accessible digital tools can help people understand how the choices they make now can impact their long-term financial situation, and their ability to achieve the types of goals many Australians aspire to. These tools should aim to build confidence by engaging people in the financial planning process and demonstrating the impact of their actions today, on their financial situation in the future.

Learning by doing educates and builds trust. If consumers can access useful information and interactive digital tools that help them understand the need for financial advice, they are more likely to see the value in engaging an adviser. By providing that educational support, an advice practice can become the go-to for those consumers who are now ready to enter the advice market.

Such tools need to be more than generic calculators with simple assumptions. To be effective, they need to be readily accessible to users and consider the interplay and dependencies between multiple goals and objectives that a household has, and how they are helped or hinder by their financial decisions such a contributing to super, getting into and out of debt and ensuring protection in the event of unexpected circumstances such as disability or death.

Advice providers that see the power of such tools are testing a client’s willingness to use and pay for compelling digital advice experiences that automate the Statement of Advice while keeping them connected to a human adviser. Changes to legislation and regulation will likely provide increased confidence for more advice providers to follow.

Entry level services

For many consumers on the cusp of needing advice, taking the step to spend thousands of dollars to engage a financial adviser can seem very daunting.

With cost one of the big barriers to professional advice, offering a less cost prohibitive service for clients with simple needs or who are just entering the financial advice market can be an effective way for an advice practice to grow their client base.

But this only works if advisers can deliver a valuable and compliant service at a low enough cost point.

That’s where technology can help.

In a recent report covering Australian adviser technology trends, only 20% of respondents stated they currently use scaled advice technology, while almost 67% stated they plan to use this by 2022.

A scaled advice offering should only require clients to pay for the services they consume, meaning they can start with a basic or limited service at a lower cost point and increase the scope – and advice fee – as their needs require.

By leveraging technology, advisers can offer more limited services to grow their client base in a profitable and sustainable way. Advice software should do a lot of the heavy lifting, leaving the adviser with more time to provide the important human aspects of financial advice and build strong relationships with their clients.

Technology is available today to digitally deliver scaled advice solutions, and progressive Australian business are leading the way in providing these types of services. As a result, acquiring new customers, and arguably starting more Australians on a positive financial journey. Greater clarity and guidance as to the application of legislation and regulation will only boost business confidence to offer these services.

Demonstrate value

By engaging prospective clients earlier with these types of services, advisers have an opportunity to start them on a lifelong advice journey and help them meet their financial goals and objectives through life’s twists and turns.

Technology will never replace the empathy, care, and objectivity that advisers offer, but it can help support those elements by providing transparency, connectivity and efficiencies that allow advisers to spend more time with their clients.

Client centric financial planning technology that proactively engages and continually delivers value where it counts will become a core part of the advice business of the future, providing a profitable service model for progressive advice businesses to engage and serve more Australians.

Want to know more?

To find out more about Midwinter’s financial advice software AdviceOS, click here to book a demo.

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