First steps in a new approach to financial advice - Andrew Main, The Australian
While we’ve seen a lot of commentary around robo-advice and changes in the way financial advice is provided, the industry is still geared fundamentally towards selling products and to only providing advice to the small percentage of individuals who can afford to pay for that advice. Andrew Main’s article in Tuesday’s Australian asserts that finally, the industry is moving past this inherent conflict.
"Paul Feeney’s Map My Plan is a virtual financial planner that does not sell products.
It has taken about 20 years but a few smart superannuation experts are working out that rather than go around in circles overservicing the 20 per cent of savers who are already getting financial advice, it might be worth doing something for the 80 per cent in Australia who aren’t.
Of course they’re not the wealthy ones but a big number of them could be, and what’s more they’re barely being serviced at all.
Let’s just take two recent innovations: Paul Feeney’s Map My Plan and John O’Connell of Macquarie’s Owners Advisory robo-advice offering. These are two examples of how the ground is changing and how the unadvised can now hope to move up a rung or two without selling their soul or — most particularly — saying goodbye to their life savings.
Feeney, a former private banker at Credit Suisse Australia, has devised a free online service for people who don’t have a financial plan, to be financed by initial investors backed by a charge of one dollar per employee per month payable by employers.
It’s called Map My Plan.
Why employers? Because “39 per cent of working Australians are spending more than two hours per week worrying about their finances at work”, he said in a recent presentation at Stone & Chalk, in Sydney: In other words they are worrying when they could be working productively.
Stripping the problem back to its simplest level, Feeney believes 28 per cent of Australian workers are so financially stressed that they are unable to meet regular payments, they carry lifestyle debt, they have either limited or no insurance and they have no financial plan.
He said for working women the number was 32 per cent, and that 36 per cent of working Australians have less than $1000 in emergency savings put aside.
“Map My Plan is a virtual financial planner that enables people to create a personalised financial plan based on their current situation and their financial goals,’’ he said.
“It does not sell any products, it merely focuses on advice to help you reach your goals.”
According to Feeney, there is ample evidence that having a financial plan is a crucial first step: “Only 13 per cent of Australians have a comprehensive financial plan, and a massive 34 per cent have no plan at all.”
The big disincentive to getting advice, he found, was that 75 per cent of workers surveyed said they could not afford to see a planner and 71 per cent believed planners were more interested in selling products rather than developing a plan to meet their needs.
Clearly the workers haven’t checked the effect that the Future of Financial Advice (FoFA) reforms have had on the charging of commissions, but old ideas take a long time to fade.
Map My Plan is a good basic idea but will need to get financial support from employer organisations and others to make it fly.
The next step up is Macquarie’s new Owners Advisory offering, overseen by former Macquarie Securities head of research John O’Connell. It will charge a fixed fee for service but it’s a robo-advice platform that will specifically not ask savers to move their assets into a new format, as most advisory systems have in the past.
In simple terms, they pay for automated advice, having laid out their personal circumstances and having then had their personal risk tolerance assessed by the FinaMetrica risk profiling software.
And, once they get the advice, they can do with it what they will.
“It was completely my idea,’’ says O’Connell, who admitted to having had one of those moments when the desire to leave a legacy overwhelms normal logic and spawns what might well turn out to be a good idea.
“I went to Nick (Moore, Macquarie’s CEO) and he concluded that this was an opportunity to build something that can improve the delivery of advice.’’
He agreed robo-advice was a pejorative term, “but it has stuck’’.
“It leaves a very, very clean audit trail and every single thing I do on my platform is 100 per cent clear,’’ he said.
“It is ‘replayable’, which makes sure that if the algorithm has been coded up to be biased … it will show,” he said. “We’ve got 12,500 securities we’ve examined, 4000 ETFs and 16,000 managed funds in our system.’’
The issue of bias is important, given the various horror stories that emerged from senator Bernie Ripoll’s inquiry into how superannuation products were sold.
The FoFA legislation, banning the payment of commissions on new business, has already produced a marked rise in popularity for exchange-traded funds, for instance. Previously, their low fee model meant advisers weren’t recommending them because they weren’t getting a commission.
But if there’s a secret sauce in either of these new products, it’s that you see what you’re getting, everything is transparent and, most emphatically, no one’s trying to sell you something. That’s clearly where the future lies."
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