New advice groups detrimental to consumers

The co-founder of iPac Securities believes the issues that saw the big banks exit wealth management will pale in significance to future failures he expects will come as a result of "fringe" advice groups.

Appearing at the ASFA Conference in Melbourne last week, IPAC Securities co-founder and NAB director Peeyush Gupta said it should not be celebrated that well-capitalised institutions were moving away from financial advice.

With more and more fringe organisations taking on planners, Gupta said consumers were at risk.

"I think where permanent, irrevocable community harm occurs is with this permanent loss of capital that occurs with fringe operators, and we're seeing a trend back to fringe operators now. I think we should all be concerned about that," Gupta said.

"Look at the AFR; you see these full page ads of firms you've never heard of. Unfortunately I think in five years' time we will see permanent loss of capital for those members of our community who can least afford it, and anything we've seen from this Royal Commission will pale by comparison."

Appearing on a panel alongside Gupta, Mercer head of industry and public sector superannuation Jo-Anne Bloch said the super and advice sectors face an "enormous opportunity" to embrace digital advice, however conceded super would have to become more straightforward to emulate the success stories of Betterment and Wealth Front in the United States.

Bloch said digital advice in the US took off after startups tapped into a "middle market" of people who distrusted financial advisers but also wanted to create wealth.

Bloch said the success of US digital advice firms also came down to their ability to provide clients with advice based on their entire financial position, including health and 401k plans.

According to Bloch, the system in Australia is too constrained to allow for the same outcome.

"I'm not quite sure the digital advice business has evolved as it has in the US and certainly to the extent that customers would want to buy that advice," Bloch said.

"It is here to stay and it's only going to grow, but I think we've got some way to go to truly deliver that seamless, valuable service. And the sticking point - which we are going to have to struggle with is that in the US, the digital advice framework is based on all of your financial circumstances.

"We have a lot of constraints here around doing that. We have constraints because super isn't always simple. But if we got to the point where super is quite straightforward and you can integrate more holistically with your financial circumstances if required, I think we have a good story to tell."

Gupta said the softer aspects of advice which help clients change their financial behaviours were crucial, and will ensure human advisers continue to play a role.

"Robo-advice can give you technically correct optimisation across tax, investments, Centrelink and the age pension. But it actually doesn't empower individuals who don't understand that complexity and need coaching," he said.

"To lose weight is easy. Watch your diet and exercise. Why do we have an industry that's actually dedicated to helping you do it? Because behaviour change is hard, so the softer dimensions of advice do require face-to-face or humans somewhere in the process."

Read more: IPAC SecuritiesJo-Anne BlochPeeyush GuptaASFA ConferenceMercerRoyal CommissionIan Silk
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