New research by CoreData has found that financial advisers would be trusted more if consumers knew more about new education, professional and ethical standards coming into play in the next few years.
But the industry continues to be dogged by the fact that most consumers simply do not know these standards exist or are about to come into effect. Trust in financial advice and in financial advisers remains stubbornly low as a result.
These insights come from CoreData’s Q4 2019 Trust Survey, which has found that overall trust in financial advice continues to stagnate. Trust* stood at 60 per cent before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry turned its attention into financial advice in two weeks of public hearings in April. Since then trust has averaged 39.4 per cent and has fluctuated between 35.2 per cent (Q3 18) and 42.2 per cent – its score in the latest survey (Q4 19).
But CoreData’s research suggests that rather than just waiting it out for trust to recover or, worse, opposing the drive to raise standards, the industry could benefit by being more proactive in creating greater public awareness of the standards, and capitalising on the existence of the Financial Adviser Standards and Ethics Authority (FASEA).
Even though more than eight in 10 (84.2 per cent) consumers say they have not heard of FASEA, a sizeable majority is favourably disposed towards the changes FASEA is overseeing. Two-thirds (67.3 per cent) of consumers believe that taken as a package, new education standards (including a university degree or higher, or equivalent, qualification; annual CPD requirements; and passing the exam) will improve adviser behaviour and professionalism.
Furthermore, almost four in 10 (39.9 per cent) consumers think a regulator focused on advisers’ ethical, professional and educational standards will be more effective in improving adviser behaviour than the Australian Securities and Investments Commission (ASIC) has been. Less than a quarter of this number (9.7 per cent) think FASEA will be less effective than ASIC, with the remaining half (50.1 per cent) of consumers still unsure.
Low public awareness of FASEA and the changes it is driving should not be surprising. The first change (approved university degree qualification for all new entrants) came into effect barely 12 months ago, and in any case the financial advice industry has previously not done a good job of publicising earlier changes that could also have helped improve its standing.For example, the Future of Financial Advice laws introduced in 2012 require financial advisers to act in the best interests of clients and to place clients’ interests ahead of their own – the best interests duty (BID). Yet almost eight years later, more than six in 10 (62.6 per cent) consumers still do not know about the BID. However, when told about it, more than four in 10 (45.3 per cent) of those who didn’t know about it say it is likely to make them trust financial advisers somewhat or significantly more.
It’s not the 40 per cent or so of people who already have reasonable trust (six or higher on the trust scale) in financial advice that the industry needs to win over as much as it’s the 60 per cent who rate financial advice as untrustworthy (five or less on the trust scale).
There are reasons people don’t get advice apart from believing advice is untrustworthy, but at least addressing the trust issue might lower one of the potential barriers.
CoreData’s research reveals that among people who currently consider financial advice to be untrustworthy:
• Just fewer than four in 10 (38.3 per cent) say the best interests duty is likely to make them trust financial advice somewhat or significantly more.
• Just fewer than four in 10 (39.0 per cent) say the package of new FASEA education standards is likely to make them trust financial advice somewhat or significantly more.
• More than four in 10 (41.5 per cent) say advisers passing an exam is likely to make them trust advisers somewhat or significantly more.
• More than four in 10 (43.6 per cent) say the code of ethics is likely to make them trust advisers somewhat or significantly more.
• Just fewer than four in 10 (37.8 per cent) say new CPD requirements will make them trust advisers somewhat or significantly more.
If around four in 10 consumers who currently consider advice to be untrustworthy were to trust the industry more and raise their trust score to six or greater, the industry’s overall trust score would improve to its pre-royal commission levels.
Coming up to two years since the advice industry got smashed by the royal commission, and with no meaningful improvement in the industry since then, it’s surely time to think about measures other than time to improve public perceptions. It may be time to embrace the FASEA changes, and to start making a much bigger public deal about them.
