The original version of this paper was written in August 2018 - however, we cannot ignore the potential implications of the Hayne Royal Commission Final Report (RC report). As such, we have updated our paper to include new content reflecting the likely impacts of the RC report.
Post RC, financial services firms will continually need to look at the long game to 'future proof' their businesses and continue to deliver trusted advice through a system free of product and conflicted purpose; and one founded on three foundations of trust:
- Capability - do I trust the capability of the adviser across the desk? Do they have a process and approach that I can easily understand? Does the system that accredits and monitors them look like a profession?
- Character - is the adviser on my side of the desk? Do they understand me and my needs? Does the fiduciary system they operate in support that cause?
- Communication - can I see consistency in everything I see and read to reinforce my faith in the adviser and the advice experience? Do they take action in my 'best interests' that puts me 'in control' of my financial situation?
The industry has found it difficult to achieve these components of trust; however, they represent the long-term future of the adviser, the practice they operate in and the advice group (currently called a licensee) supporting them at a client and operational level.
The RC report and its explanatory content made this very clear. Industry participants now have a choice: they can get involved in the 'injustice debate' or use the valuable time left to adjust their business model for long term sustainability and success.
At Encore, we have an unwavering belief in the value of advice and our purpose is to help and inspire the advice community to deliver trusted advice to more Australians, more often. There are a number of core tenets that advisers, practices and advice groups need in order to achieve long-term sustainability and success.
1. Client driven, active revenue
The practice should make 100 per cent of its revenue from professional services and advice. For that to occur, the client needs to completely trust the professional system. This means advisers must remove all conflicted remuneration and embrace an active, valuable relationship with the client.
Under the RC report it seems clear that revenue coming from the client and within an active, valuable relationship will attract a premium. Other forms of revenue will be discounted or completely removed (i.e. removal of grandfathering, annual opt in, insurance commissions, broking commissions).
Fee for no service refunds will be the biggest compliance theme of 2019. It is now front and centre for the practice and licensee well beyond the largest six players.