The Future of Financial Advice
This is the first of a series of articles on the Future
of Financial Advice (FoFA) Deloitte will publish in
our Regulatory Review to support the industry as it
grapples with the new challenges posed by FoFA and its
emerging trends. In this article we provide an overview
of FoFA, its timeframe, and discuss the implications for
change and people management
Overview The FoFA reforms aim to improve the trust and
The FoFA reforms were introduced by the former Minister confidence of Australian retail investors in the financial
for Financial Services, Superannuation and Corporate planning sector by targeting the quality of advice and
Law, Chris Bowen in 2010 in response to the report by enhancing retail investor protection. ASIC research has
the Parliamentary Joint Committee on Corporations shown that distrust and cost prevented many from
and Financial Services (chaired by Bernie Ripoll MP) seeking or accessing financial advice2.1The reforms seek
into the issues associated with financial product and to re-establish a relationship of trust between financial
services provider collapses such as Storm Financial and advisers and consumers by:
Opes Prime, with particular reference to the role of • Giving greater power to consumers
financial advisers. The Minister for Financial Services • Seeking better quality advice
and Superannuation, Bill Shorten, is responsible for • Introducing higher standards of professionalism for
implementing the reforms. financial advisers
• Providing transparency around the cost of advice
• Addressing conflicts of interest including conflicted
It also strengthens ASIC’s powers to take action,
remove the accountants’ exemption, extend intra-fund
advice and require clearer Financial Services Guides
(FSGs). Currently the review and consultation processes
continue around the definition of the ‘retail client’, to
ensure it is correct, and explore the need for a statutory
2 One of the most recent reports showing these findings is the ASIC Report
224: Access to financial advice in Australia December 2010
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The key proposals are summarised in the diagram:
Best interest Removal of conﬂicted Volume related
ﬁduciary duty remuneration payments
Diagram A: Summary of the key proposals
Timeframe The FoFA reforms have wide reaching implications.
The most recent Information Pack on FoFA was released Independent research commissioned by the Financial
on 28 April 2011 with public exposure of the draft Services Council indicated that recipients of financial
legislation expected in August 2011. Treasury anticipates advice are likely to be up to $100,000 better off at
that legislation giving effect to these reforms will be retirement than others; that individuals with a financial
introduced to Parliament before the end of 2011. adviser are more than four times likely to have life
Legislation implementing the majority of the reforms, insurance cover; and that the true value of financial advice
including the prospective ban on conflicted remuneration lies in the ability to change individuals behaviours towards
structures, an adviser charging regime, and statutory saving and financial discipline.
‘best interests’ duty, will commence from 1 July 2012.
The ban on upfront and trailing commissions and like The effects of the reforms will also include restructures,
payments for risk insurance within superannuation, mergers, acquisitions, opportunities and a possible exodus
will apply from 1 July 2013. of financial advisers. In recent weeks, there has been
a significant market response as organisations position
Challenges themselves for a future in a FoFA world. Nevertheless
As the FoFA reforms reshape the world of financial there is still uncertainty over the reforms and when the
planning, organisations will be challenged to stay ahead draft legislation is available in August, the key challenge
of the changes in order to come out on top in the new will be to be adequately prepared. This can happen by
legislative environment. Actions will need to be taken to thoroughly considering the impact of FoFA on strategic
make the most of the opportunities to differentiate from and operational planning while the industry waits for the
competitors across various segments including customers, absolutes to be agreed.
current and potential employees and advisers.
Regulatory Review August 2011 3
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Change management and people Equipping financial advisers with the right
One of the most significant areas will be determining the capabilities
impact of change on businesses and in particular the staff What are the characteristics of a ‘good’ financial adviser
and advisers when strategic objectives such as the client and will those characteristics carry over into a reformed
value proposition, operational processes and technology financial planning industry? Most organisations have been
required in support of strategic objectives, and related tackling adviser capability for years but some still tolerate
implications on tax, financial, actuarial, compliance and a degree of grey regarding the critical knowledge, skills,
people factors, change. The reforms will have a significant and behaviours needed at an individual and organisational
people and change impact as structures and processes level to stay competitive. The characteristics of a ‘good’
have to shift to enable advisers to operate in the best financial adviser may not necessarily translate in a post-
interests of their clients, whilst remaining engaged and FoFA reform environment, and organisations must identify
motivated in a commission-free world. and develop these characteristics in order to equip their
advisers with the right capabilities to stay competitive
Have you considered: and to ensure that they meet the new statutory best
• How well your organisation is positioned for the next interests’ duties.
chapter in advice?
• The implications of FoFA on your people? Engaging advisers
• Who you cannot afford to lose? Once an organisation has identified the critical
• How you will manage the behavioural changes? knowledge, skills and behaviours to stay competitive,
• How you will motivate financial advisers via a reward the reward structure should recognise and reward
program that does not involve product commissions or desired behaviours and motivate employees to perform.
volume-based bonuses? Organisations will need to assess whether they have the
capability to measure these new behaviours that are
As the playing field dramatically alters, the level of beyond the financial, and are linked to performance in
preparedness and the way organisations manage the such a way that engages top talent. Being clear about the
reforms will be critical factors in their ability to attract, non-financial drivers of engagement for their workforce
retain and support talent. And ultimately position will be critical.
themselves competitively for the future.
Ultimately, a successful organisation in the wake of FoFA
Changing the mindset – a salesforce to and other reforms, will be one that has supported its
a profession advisers to own the changes and encouraged them to
Those organisations that manage the reforms well embrace their new roles and responsibilities. By equipping
stand to attract and retain the best advisers. Those their people with the right capabilities, motivating
operating under a commission structure, where advisers them towards high performance and rewarding their
are motivated by incentives, will require behavioural achievements, these ‘transformed’ organisations will be
change. The financial planning culture will need to positioned to capitalise on the new opportunities the
become transparent where everyone is very clear about reformed environment presents.
acceptable and unacceptable behaviours. To achieve
a transformational organisation, advisers will need
to be clear about their new responsibilities and roles.
Organisations will need to articulate a compelling
promise so that their advisers’ roles remain engaging
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Being clear about the non financial drivers of
engagement will be critical
In consideration of these concepts, are you:
1. Clear on why your top talent joined your organisation?
2. Compromising these arrangements as a result of implementing FOFA?
3. Confident you have articulated a new value proposition that will attract and retain the best advisers, and
motivate them to stay and perform in the long term?
4. Planning to ensure you retain your top talent?
5. Aware of how your advisers will react when these changes come into effect?
6. Prepared to help the advisers through the transition?
7. Communicating the FOFA changes effectively?
8. Motivating and rewarding a distribution channel with a short term focus via a reward program that does
not involve product commissions and requires a longer term approach?
9. Clear about the key knowledge, skills and behaviours you need your advisers to demonstrate to achieve
business goals and meet regulatory requirements?
10. Confident you can achieve or sustain competitive advantage?
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