It seems like a long time ago now, but the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was a landmark event for financial advice. Public hearings of the inquiry, conducted during April 2018, set the tone for discussion of the industry, and of financial advisers, for the months (and then years) that followed.
CoreData’s measurement of trust* in financial advice plummeted after the inquiry’s public hearings, diving 25 percentage points from almost 60 per cent to just more than 35 per cent. For the next year and a half, trust bounced around between about 36 per cent and 42 per cent.
But the public’s trust in advice remained stubbornly unresponsive to many of the positive developments taking place in the industry – developments that were not solely a result of actions taken to address issues identified by the royal commission, but also included real steps towards improving educational standards and qualifications within the industry, to put it on a footing more recognisable as a profession.
But that seems now to have changed. For the past three quarterly surveys – since the second quarter of 2020 – trust in finance advice appears to have taken a step up and to have found a new baseline.
This possibility was flagged by New Model Adviser last week, and while trust in advice is still some way short of its pre-royal commission level, now we have added the Q4 2020 survey results to the series we can say that trust in advice is showing a sustained improvement compared to the dark months that followed the inquiry.
Our latest survey, of more than 870 consumers, reveals a trust score of 47.8 per cent for financial advice. A difference of 2.1 percentage points with Q3 is within the margin of error for a survey of this size. What’s more important is the trend, and the trust score has maintained its higher level for three quarters in a row now.
As mentioned on New Model Adviser previously, there are a couple of factors that may be feeding into an increase in trust in advice. One is the growing realisation of the benefits and value of advice as the financial impact of the COVID-19 pandemic on individuals and households begins to be felt. Another is a growing awareness of the professional, ethical and education standards that all advisers need to comply with by 2026.
The head of the standard-setting authority itself has suggested that the work advisers are putting in and the time they are committing to complying with the new rules – in particular, the exam – are worth talking more loudly and broadly about with the general public.
It’s one thing for an individual adviser to tell their clients that new standards are coming into play and that they (the adviser) are compliant or are on-track to be compliant by the prescribed deadlines. That will be of limited help in raising broader awareness and trust because, by and large, the existing clients of financial advisers already fundamentally trust their adviser.
But it might not be a bad idea for the organisations that represent financial advisers, including associations and licensees, to be far more proactive than they have been to date telling the public about the changes that are sweeping the advice industry.
Reticence in promoting the standards has been based, in some quarters, on the fear that the public may have assumed that advisers are already qualified to the extent set out in the new standards and may be surprised to learn they are not – better not to raise the matter at all until advisers have attained the required qualifications than to raise it now and call attention to something that wasn’t previously an issue.
However, CoreData research has shown that fully half (50.0%) of clients already know their adviser does not hold a bachelor’s degree or equivalent or higher qualification, and fewer than one in 20 (4.1%) say they don’t know if they do or not.
There is also strong public support among the public for the concept of the new standards and lifting all advisers’ qualifications to comply. Almost nine in 10 (86.6%) people agree that financial advisers should be held to the same standards of professional behaviour, ethics and qualifications as other professions, such as medicine, law, actuarial and engineering.
There doesn’t appear to be much to lose from loudly publicising the time and effort advisers are putting in to comply with the new standards, and quite a lot to gain.
* CoreData Quarterly Trust Surveys – Q2 2018 to Q4 2020. The trust score denotes how many respondents rate their trust in financial advice as a six or greater on a scale from zero to 10, where zero denotes no trust and 10 denotes total trust.
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