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To empower the victims and potential victims - the only true objective

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2018-05-01

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The Royal Commission continues to forensically examine the wealth advice business.

What are its end solutions? More regulation? A restructuring of the licensing system? More technical training and ethics courses? Changes to advice processes? More technology? Higher penalties? More resources for ASIC? An increase in the amount of investor engagement required?

All could come into play, but the power of the solution lies in the process, and the victims deciding to have a say and then act. We have seen the power wielded, important outcomes, and influence on society's standards by another recent Royal Commission. We see the power of women abuse victims standing up and speaking out and empowering the support of other victims. We see the power of the marriage equality process that delivered a confidence boost for those who had suffered to move forward. The bottom line here is one of empowering victims so that they are no longer seen as victims.

The Product Disclosure Statement is an investor disempowering document. It is not designed to help an investor know if a product is suitable for their requirements. It is legally constrained and is essentially a document of the terms on which the product will be delivered. It is an ultimatum. It disempowers most investors by forcing them to seek assistance. It is not written from their point of view. It delivers no consumer power. This flies in the face of a modern trend - the empowering of the consumer. Investors seeking empowerment are driven to Adviser Google', whose responses cannot be verified as helpful and factual and fail to disclose if the content carries a hidden marketing driver.

FOFA 244.28 Example B provides the basis for a better outcome: An organisation without an AFS licence includes on its website a list of financial products of a particular class available from third-party product providers, together with some objectively ascertainable factual information about specific product characteristics, with the aim of providing useful information for consumers to assist them to make a decision about the class of financial product.'

Completing an investor's risk profile is also disempowering. The ability of the uninformed investor to provide an objective answer on their risk versus reward equation is non-existent. Each answer is an emotional and subjective response to a question that requires prior understanding of what the answer means. This approach, which is often early in the advice process, creates confusion and an unnecessary drain on confidence in the mind of the investor. 

Blame can also be attributed to the structure of the advice business. True professional disciplines operate via a College (or similar) that is responsible for the professional and ongoing practitioner standards and the recognition of competency. An association of such professionals (eg the AMA) advocates for its members. Both bodies have the power to remove a practitioner, which provides a stronger base for self-regulation. The current licensing structure has encouraged vertical integration within organisations -adviser, dealer, platform and products - all opportunities to reap a return from the client.

The odds are stacked against investors and makes them vulnerable to consequent financial pillaging. However, as noted already, recent experience elsewhere shows that exposure empowers victims to effect revenge and change.

Knowledge empowers

So how do we empower the investor? Should we anyway? Is the patient empowered when dealing with the medical profession? Dr Google has, with all its faults, helped us have a better dialogue with our doctors. So it can be with our wealth. There is an irreversible trend, through tools that either exist or are evolving, towards empowering the individual to make better wealth management decisions.

It opens the way for a knowledgeable third party Australian source of helpful and factual investment information covering strategic topics and financial products. This only makes sense if the content is current and delivered in a relevant and engaging way. This source cannot be the mouthpiece of product issuers and those with a cause or service to market.

Knowledge that is assessed empowers more

The real act of empowerment happens when the user can assess the level of recall, comprehension or ability to apply that knowledge. It is this step that creates the more equal playing field. It is this step that creates the conditions for better outcomes. It is unlikely that the Commission's top down approach will deliver on this, but is very likely that the groundswell of empowered victims may use choices that actually lead to ongoing better outcomes.

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