One of the things that’s great about my role as a financial adviser is the variety of work we get involved in. One day it will be establishing and managing self-managed super funds, the next doing battle with Centrelink and the day after that helping a small business with structuring and budgeting. Looking back over 20 years is quite amazing. Many clients, retired for years, have more assets than when they first came to see us (despite the twin towers attack, the GFC and COVID-19). Others prosper because of the work we did to help when their business was struggling. Some we have helped in amazing and very personal ways.
And 20 years is a long time. Things change. Back in 2000, the official Reserve Bank of Australia cash rate was 6.25 per cent, now it’s 0.1 per cent. That might be good for homeowners with a mortgage (although my assessment is that you just pay more for the property), but it’s terrible for many retirees. For example, a few weeks ago the best term deposit rate I could get on $2 million was 0.4 per cent. These low rates fuel other issues and some of the advertising I have seen for ‘safe’ investments with high returns mirrors that of the 1980s. We need to protect people from that.
While the share market goes up and down, the regulatory burden only ever goes up. There are several reasons but the primary one is that politicians jump at any shadow and use whatever tools are on hand to sheet home blame to others. Take the Hayne Royal Commission – Labor got the Coalition into a corner about supposed corporate wrongdoing and rather than narrow it down to specific issues, the Coalition caved in. Stupidly the review was limited to ‘wrongdoing’ in the financial services sector, not on an overall assessment of good and bad. This led to a media free for all and fees for counsel-assisting, Hodge and Orr of $15,000 a day give or take. Kenneth Hayne’s report was shallow, but he could easily say he was not permitted to do more.
The result of this pathetic attack on the financial services industry and people like myself? Well first a lot of people lost their jobs. Some of these did not deserve to, like the Managing Director of IOOF, who was later acquitted of the accusations levelled by the newly minted rock-star lawyers. The regulator ASIC, joined in the pile-on, only to lose more court cases, including the infamous Wagu and Shiraz case. ASIC ploughed on, lying in press releases that it cost $14,000 a year to run a self-managed super fund (my family has had one since 1995 and can tell you that is abject garbage) and making all sorts of ridiculous assertions about the industry failures being “a tip of the iceberg”. ASIC also backed industry funds, which got off lightly in the Royal Commission but are now front and centre for underperformance, paying member money to unions, and wasting it on advertising. ASIC itself is now tied in knots, awaiting a massive restructure, due to incompetence and payments made to its previous Chairman and his deputy, which were at best unclear.
And finally our friends at the Australian Financial Complaints Authority (AFCA), which in 2020 is an actual manifestation of the old ‘complaints department’ everyone joked about in 1970’s retail sitcoms. Nowadays it is no joke. Anyone can complain and a financial services provider has to pay AFCA $5,000 to challenge any assertion, no matter how ridiculous.
Seeing all this, what do you think insurers offering professional indemnity insurance to financial services businesses and directors did? They ran for the hills, with the few that remained jacking their premiums to eye-watering levels. ASIC, the people’s friend, then loaded the costs of its (generally) failed court cases on the remaining financial services businesses (that’s how ASIC is funded, in large part).
Since the Royal Commission, more than 5,000 advisers have left the industry. Estimates show another 5,000 will soon be gone. If like me, you are silly enough to believe in what you are doing, then there is only one option if you want to stay in business, and that is to increase fees. Reports across the financial advisory industry suggest fee increases of between 10 and 30 per cent. All the while clients keep coming in. They do so because the interaction between superannuation, Centrelink, financial markets and tax is so complicated that you need a sharp mind, and the time to understand it, find your way round the maze of implementation and make sure things are on track.
When you read about the latest ‘scandal’ put it in the context of 20,000 financial advisers, servicing hundreds of thousands of people accounting for hundreds of billions of dollars. Politicians and regulators are making life very difficult. Because they are often incompetent and bear no consequences when they directly hurt you.