Transcript

Matt Heine (MH):

Today we've got a special guest. We've got Blake Briggs joining us from the FSC. Welcome to the show.

Blake Briggs (BB):

Thanks for having me.

MH:

Now before we sort of get into all of the topics that I know the audience is keen to hear about Q A R and the work that you've been doing there. As always, I'm keen to just hear a little bit about your journey and how you've ended up doing what you are doing, including some of the companies that you've worked for.

BB:

Yeah, thanks. I've had quite a varied career actually. I've been in the financial services industry for about 15 years now, both two iterations at the Financial Services Council, also a stint at Westpac and BT. But before that I had quite a diverse experience. I was an industrial advocate arguing cases before the Fair Work Commission and the Industrial Relations Commission as it was then. And I think I started off as a removalist doing the hard jobs first and moving on to the easy street of financial services later on.

MH:

And what was it that initially attracted you, particularly to this industry but also the policy side of it?

BB:

So I started off doing industrial cases at the commission and the superannuation element of industrial relations was a recurring theme. And so the more involvement I had in some of the policy issues around superannuation, the more I realised this is a really significant area for the Australian economy, for the wellbeing of Australian consumers. And eventually I was picked up for that skills and experience as there's not too many in the industry who have that combination of knowing how the industrial system works and superannuation policy. And so I was picked up for that knowledge. And the more you do, the more interesting it is and I've never left since.

MH:

So you were working at the F S E initially and I think at the time one of your peers was Andrew Bragg, who's clearly gone into politics. He was. How come you decide to go onto the business side at that point?

BB:

Working with Bragg was fantastic. Senator Bragg, I should say. Senator Bragg,

It was fantastic to work with him. We don't agree on every policy issue. I'll be really clear about that. And now I run the FSC every time he's referred to in the media as former FSC policy director Andrew Bragg, I have to pause and take a deep breath. He was obviously always very focused on the political element involved in the liberal party for a very long time, both here in Victoria and also up in New South Wales. From my perspective, I'm much more about the policy and so political relationships are very important in the work that we do. My focus is on getting really good evidence-based policy developed, taking those down to Canberra and arguing with the conviction of your beliefs and having success in that area for the members that we represent.

MH:

I've always admired people in your role and the work that you are doing because you do have so many parties that you are trying to coordinate, some might say herding cats and trying to make sure that you can actually get a resolution and in many cases a single voice can't be easy. How have you learned those skills over time and how do you actually manage it?

BB:

Look, patience is important. So you're absolutely right. We have about a hundred organisations that are members of the FSC. They're across a whole range of the value chain in financial services, fund managers, advice licensees, superannuation funds, platforms. It's about respecting the important role each of those sectors play in the overall industry. There's industry association, enjoy difficult to manage at the best of times, but if you have a really strong governance process in place, everyone that has a stake in a given issue has their voice heard. And the governance process allows you to work through difference of opinion. We don't actually always land a unanimous position. There are from time to time, individual organisations will make it clear that they don't agree with the position and they'll individually advocate or lobby for a difference. But we can respect people's differences and we can also understand where they've come from and why they're doing that.

But it is a really important, groups like the FSC are a very important vehicle because otherwise you would have a hundred different voices in a debate rather than one very strong voice and then a few individuals on the outside. And that strong voice is usually very persuasive. It also allows us to put a predominantly consumer lens over the top of a lot of the industry thinking to make sure that that filter is there, that the industry is always having in mind to as clients and its customers so that when we do go down to Canberra, it's a very credible, strong position.

MH:

We might come back to the role of the consumer voice shortly when we dig into QAR and some of the work that you were doing there because it's certainly been very prominent in that discussion, but probably remiss not to I guess pause for a moment actually understand what is the FSC, what's its background history and what's its role?

BB:

Yeah, so the FSC has always been a fairly broad church we'll created some time ago by a gentleman called Richard Gilbert who brought together a couple of different sector specific associations. And the view was at the time that there was a lot of regulatory issues in common, but also that if you pull your voice from resources and you have a stronger and louder voice, and that I think really has proven to be the case over the last 15 years. So we do have those four sectors in our membership. It is a real strength that the industry is able to get together and work through common concerns. And if you look at regulatory issues that are coming down the pipeline, the DDO regime that we're all accommodating and adjusting to the implementation of quality advice, which is now kicking off, it is areas of regulation where there are very common concerns and a need for a joint approach. And so work that groups like the FSC has done to try to tackle DDO implementation, we were able to take lessons learned from each individual sector and apply it across the industry so that we had standardised forms and templates for advisors and product manufacturers, which massively simplified the implementation of that regime. And if the more we do of those sorts of changes, the more efficient sector we have, the easier we make life for advisors to be clear. But also the cost of implementation and cost to end consumers is produced.

MH:

The actual FSC makeup membership has clearly changed pretty significantly over the last couple of years with many of the banks exiting wealth. What changes have you seen in the FSC over the last maybe five years and in particular since you've taken over as C E O, what are some of the big changes that you've made?

BB:

It's actually a very good thing. The way the industry's restructured. I mean the industry went through a period of pain and reform there, but the net result has been very good, not just for the industry but for the consumers it serves. So a lot of those big bank conglomerates have exited the industry and sold down various parts of their businesses. As a result, the makeup of the FSC has also changed. To be frank, we're no longer dominated by a small collection of large institutions and I think that's a fantastic thing. You look at my board and we have representation of a lot of standalone business lines. Some are fund managers, some operate platforms, some operate advice licensees. And what has allowed us to do is give each sector a lot more sovereignty of their area of policy. Now, I know a lot of outsiders look at the FSC and think of us in terms of the product manufacturers, but if you ask any of the advice licensees that run our advice board committee, what's the focus of their discussion? They know they have a singular focus on advice, the best interest of the advice community and financial advisors and making that work and the regulatory framework work for them. And so it's given the FSC a real clarity of purpose, which is fantastic and it's added to its strength over the last couple of years.

MH:

For a period there seemed like there was an industry body for everything. We had more industry bodies than participants. And we're seeing now obviously the FPA and the AFA coming together under the FAAA. How's the FSC is interacting with some of these other industry bodies? Are you finding that there is a unified voice on certain aspects or is it really them doing what they're doing and the FSC sort of moving forward on their own agenda?

BB:

There has been alphabet soup out there in the association land, and we're the first to recognise that. I think we are seeing a much needed rationalisation of the different voices in that space. And I applaud the FPA and the AFA for coming together. I think that was a fantastic move. And the new entity, the advice association is very good to work with. So Sarah that runs that is top quality. I think there needs to be probably a bit more consolidation across the industry, but regardless of how long that takes and whether or not it's achieved the priority, and this is what we've been working very well at, is making sure that we're aligned even though we may have different groups and associations, making sure we're saying the same things to Canberra and making sure that all those areas of common interest are identified and prosecuted really clearly. And so you have groups like the slightly awkwardly known as jog, which bring together I think half a dozen different advice associations and we do a lot of work behind the scenes to make sure that we're saying the same thing. We're working together constructively and the government can't pick off individual groups to try to get what it wants. And that's why the advice debate is where it is now because we've been able to work together so well over the last 12, 18 months.

 

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MH:

Often when we're out speaking to advisors and licensees, there's a perception that they're too small or their voice won't be heard and that they therefore will leave it to the likes of the FSC or the big organisations. And then sometimes we'll be disappointed with the outcomes. How do we avoid I guess the vocal minority and making sure that all the voices are heard. And before we move on to some of the work you've been doing with the QAR, how would you like to see the industry engaging better with the FSC and vice versa?

BB:

Well, for my part, I spend far too long reading the comment section in trade press, but there is a good reason for that. It is very important we just don't solve these policy questions for the beginning of town because one of the reasons we ran what we now refer to as kind of an advice white paper process a couple of years ago was that a healthy advice sector, and that includes everything from your small mom and dad, individual advisor business all the way through the large advice licensees. A healthy sector is critical to a healthy industry because the advisors play such an important role in that process. Now the FSC has a board committee with some of the larger advice licensees and a few of the mid tiers to be fair, but licensees and the bigger end of town, we're trying to build that out and we're trying to have conversations with different licensees because it does have a singular focus on the interest of advisors. It's really important we have a broader reach into the sector because that will allow us to make sure we balance the different interests of different business models. And if we're able to get that, then we hopefully we achieve a regulatory framework at the end of this process that is durable, that doesn't have people throwing rocks at it from the outside because they're part of the decision making process. And if we're successful in that path and we have better engagement through FSC and other vehicles, then I think can achieve that outcome.

MH:

Great segue into some of the work that you're doing at the moment. Before we move on to that, in addition to QAR, what are some of the other hot topics that you are looking at or thinking about at the moment?

BB:

Well, retirement is a really big piece for both us and will be a really important one for the government. The advice piece of retirement is obviously important. That's something the government's talked about quite a lot in the QAR context, but there is a lot more to good retirement planning than just the financial advice piece. And so there is a question around the suite of products that should be available in the market that are quite often available overseas but not here. What are the tax and regulatory barriers to them coming to the market in Australia and who is going to provide some of those products? So insurers the obvious answer in some cases, but I know a lot of their FSCs funds management members can have really innovative solutions to retirement needs and different asset allocation to achieve that. And we really need that diversity of product opportunities to give advisors a full suite of options to work with their clients. Given the 5 million odd Australians approaching retirement now, we need better solutions for them when they hit that point. So that's a big focus for us over the next 12 months.

MH:

So clearly many of these topics are very important to us and no doubt the people listening otherwise they wouldn't be listening. How important is it to the government? Where does financial services and retirement income advice sit on their agenda given that we've got rising inflation, increasing interest rates and a raft of other issues that many would actually suggest were more important?

BB:

I think there is good reason for optimism that we're going to get somewhere in this debate this year. I would've probably been a little bit more cautious a month ago if we had a podcast a little bit before the government's announcement. I think realistically they've taken Michelle Levy's report. It was a report to them that they could quite easily have been if they'd chosen to, but they have adopted by and large a lot of it as government policy on that multiple phase process. And I think there's a lot of reason for optimism that they will deliver at least large chunks of what they've committed. Now it's the job of organisations like mine to hold 'em to account to make sure that live up to their commitments. But I think now that it is approved cabinet policy, we've got a lot to work with, there will be challenges. We have regional tension, we have wars in new Ukraine, we have inflation, we have rising interest rates, and that will cause other priorities to cut across financial advice. But I do expect there will be a steady progress in terms of policy design, getting legislation into parliament, getting bipartisan support for it, and then getting it through both houses and becoming the law.

MH:

So as far as the process goes, I think some people were disappointed clearly by the length of time that it took. Michelle delivered a great report in many regards and it seemed to just sit there for some time. What were your observations of the process and how did you see the government engaging with the report and ultimately with the outcomes that they've come up with?

BB:

What Michelle did very well was grapple with the size of the challenge. People are right to be disappointed that this is taking time because the challenge is so large and that the headwinds industry facing, obviously advisor numbers have fallen to 16,000. It's very difficult to run an advice business in some circumstances and the economics of it aren't fantastic. So there is an urgency there and completely get that. The reality is though, the sausage making process that is the Canberra bubble is never quick. The minister has set himself a timeline of getting the first stage of reforms into parliament this year. We're doing everything we can to support him in achieving that and also holding him to his own timelines. If you unpack what is in that first phase of reform, there are a lot of good things in there that will make life a lot easier for advisors, reduce regulatory costs and deliver good consumer outcomes.

MH:

Yeah, I think certainly from where we sit on Flinder Street, you could hear a quiet cheer coming from many is that first set of announcements came through.

MH:

What's the process from here? What should people expect? We've sort of had some big headlines. There's things in there that people I think are legitimately quite excited about, reduced SOAs reduction of, or I guess the removal of fdss. Is this a 12-18 month process from here? Are we going to be sitting here in three years still talking about what that might look like?

BB:

Look, I hope not is a short answer. If we are, then I'm quite happy to step back and give someone else a try because I will have failed. The first phase is going on in earnest behind the scenes at the moment, treasury hold multiple round tables with industry participants to lock down what that first phase would look like, where reaching agreement around what simplified or reduced statements of advice look like, what the record keeping obligation should look like, what the removal of the safe harbour steps for the best interest duty would look like, revisiting the design of the code of ethics so that more of what is currently hard coded in legislation and quite onerous could be simplified by putting in a regulatory document that sits outside. That's all happening in real time right now. We were meeting with treasury about that last week. The FSC’s followed up recently with further conversations.

And as I said, we're working very closely with the advice association with licensees and the other associations that sit on the side of jog to make sure that we're speaking with one voice in that area. And I think there's reason for optimism the second stage, the one around retirement advice. It's a much more complicated piece of work. The minister is going to have to wrap his arms around some quite challenging questions like how do you get access to the different information points in order to be able to give people good quality advice about their retirement? Should a trustee have access to all that information even where they don't hold themselves? Do you go beyond a person's interest in their fund to include their spouse's assets, their social security eligibility, their property? There are some very meaty questions to unpack. And then the hardest one is, can you collectively charge that to all members of the fund or does that push the boundaries of fairness within the context of a trust? There aren't quick answers to those. There'll be a lot of consultation, I think, to try to land a situation where everyone is comfortable with it, but the work on that will be kicking off pretty soon.

MH:

And do you think all of this work will ultimately provide an environment where people can start to innovate around their business models, come up with new delivery methods outside of perhaps just removing red tape and therefore the cost to serve?

BB:

That's a key focus. If we can remove the red tape in a way that is product neutral, technology neutral as well, then it will allow organisations to invest in solutions that don't just simplify business models but actually deliver advice in new and innovative ways. A really simple example of that is just not having to do it with a piece of documentation, being able to do it through conversations or videos or online and in more advanced scenarios that I know some organisations are working on through artificial intelligence or computer programmes. So if we can design this regulation or redesign the way it's approached in a technology neutral way, it frees up that investment capability. And this is a really key part because to be completely honest, superannuation funds capacity to invest in very broad advice solutions limited. They don't have enormous pools of capital they can spend on themselves. It's all on trust for their members. So it is the other parts of the industry that will need to make the big investments to make advice more affordable. And that's the government needs to create the right incentives to do that and the regulatory reform is what will achieve it.

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MH:

And are there markets overseas that we look to for inspiration or ideas?

BB:

I can't point to too many markets overseas that have had such a significant negative impact on the advice industry that Australia has. So to the extent that we look at other markets, I suppose what we're trying to do is undo some of the damage that was done without removing some of the key consumer protections that were implemented. We do have alternatives that have been kicked around, have it like in the UK where we have a situation where if you're an aligned advisor to a corporate entity, then you are treated differently from an independent advisor. Look, a few people are interested in that, but I'm not convinced. I think that will give rise to the sort of conflicts that we had 10, 15 years ago that caused a lot of problems and Michelle Levy for her part looked at those as well and didn't go down that path. I couldn't point to a foreign jurisdiction that we necessarily want to emulate, but certainly the quality of advice technology that exists overseas that players aren't able to bring to the Australian market because of the regulatory burden is something that we should be examining.

MH:

That seems to be an obvious place where innovation might occur, whether we end up in a full robo environment, I think that still will be many years off. But as far as guided advice or at least reducing the cost to serve through simplified process, I think that's all going to be a major win.

BB:

What you're able to do with that sort of solution is if ASIC ever came and popped over the hood to take a look at how the advice was delivered or there were any complaints you have a perfect record of the advice was provided, the inputs that were received, what was taken into account, and the basis for a recommendation. It creates a perfect audit trail. So from a compliance perspective and a consumer protection perspective, it's very robust compared to where we currently are. And I think there's a lot of reason to favour that sort of model,

MH:

Bit of a theme in the podcast at the moment. And as I said in the last one, very hard to have a conversation these days without mentioning Chat GPT. And at some point, how do you see chat GPT and the technology that sits behind it changing the industry?

BB:

I got to confess something. I went on once to try to create a profile and have a play around with it, and it was too busy and it told me to come back later and I've never come back later. So really important lesson in consumer experiences here that if you make it put up too high barriers, then you lose someone. But I was recently at an event in Washington where I was talking to a number of senior executives at global wealth businesses, and I think I can name them because they said it publicly, JP Morgan Wealth globally was running, I think it was in excess of 60 or 70 trials of AI technology in their business systems. And this is just a wealth part of JP Morgan. They're well ahead of where the Australian market is at the moment.

MH:

JP Morgan or Morgan Stanley,

BB:

JP Morgan, right? Yeah. Although I don't doubt that they're all doing it right. They couldn't understate the opportunity it presented to simplify internal processes, everything from automatically generating investment presentations to actually integrating the advice solution process. And so they're actively experimenting with their technology to improve their processes and reduce their operating costs.

MH:

Well, it sounds like you need to go and have another go at registering this afternoon. Certainly is every part of every conversation I'm having at the moment,

BB:

From what I hear, it'll be superseded pretty quickly by something else

MH:

That's very possible. Yeah. Speaking of which, what's next for you? And the FSC

BB:

Advice will be the topic of the day for the next six to 12 months. So that will be a huge focus for us. The other one that we really want to make headway on is you have this heat map and performance testing process for superannuation investment products. And it's an area of a bit of frustration to be honest, because the government has done a very good job of identifying and naming and shaming products around underperforming. But what is not openly talked about is the fact that the vast majority of these products are closed to new investors, and the reasons why existing investors are usually in them is for tax reasons they can't roll out quite simply without getting a tax event. And so we're trying to have a conversation with a p r and the government around not just better disclosing why there's a lot of red on some of these products in the heat maps, but then also creating a vehicle to be able to help the industry close 'em down and move to contemporary products. You have this whole new suite of low cost, very pointy fee investment options out there. By and large, they're the ones all passing the performance assessments and it's in the industry's interest, and it's also in the consumer's interest to be able to move people from the old legacy systems to the contemporary ones, but it's government regulation that prevents us from doing that. So that's an area we want to make headway over the next six to 12 months as well

MH:

As an extension of that. The second conversation I seem to be having regularly at the moment is why aren't we talking to the government about removing CGT on rollovers?

BB:

And that's a big part of it, so that should be there. I mean, that's there for my super product. And so if you look at the impact the performance testing had on my supers, all the ones that have failed, I think with our exception now, have been able to merge with an alternate fund because there was CGT relief in place that exactly the same thing should be there for choice products as well. And it's not, that should be a priority for the government. And is it, I think when they see the next suite of failures, when performance testing is done at the back end of this year, and they see consumers getting upset because they have received a letter from the government saying your product has failed, and advisors will then get phone calls from their clients saying, why did you put me in a product that failed?

There will be a groundswell of concern, and this is actually something really important for advisors to be aware of. The government has designed a process where the failure of investment products will be communicated directly to the consumer. It'll be conveyed in very blunt language. The advisory is usually cut out of that process. They will not receive a copy of the letter the government is sending, and the first they may be aware of it is when they get very upset from a client. We're trying to raise awareness of that because the advisors should know this is going to happen and it's a government mandated process. But what we would like to do is not just focus on who's to blame, but also okay then how do we address that situation and try to get consumers into good products or whether there's been a false positive which will occur. How do we communicate that to a consumer to avoid them making a bad decision based on bad information from the government?

MH:

Okay. So the scenarios you mentioned previously was really around more success of fund transfers where you're picking up a whole fund and merging it with another. You are suggesting that it is actually on the list to look at as far as the individual level and making it really easy to remove barriers between those products.

BB:

So an individual consumer will always be able to change products if it makes sense from a tax perspective, the SFT needs to apply to the whole product that will need to occur. There will always be some categories of consumers who you call, you send letters and they just won't respond to it. So the SFT piece has to be done as well. Yeah,

MH:

But also the individual,

BB:

Yes. Yeah.

MH:

Okay. Well, since we've got down into the weeds, a topic that we just touched on before, I was in a deep conversation number of practises yesterday around wholesale and retail advice as far as clarifying the thresholds and the rules around that.

BB:

And you actually asked a question earlier as well about the impact consumer groups were having on this debate, which I don't think I fully answered, but it's relevant here as well. The consumer advocates have obviously been very persuasive in the advice debate for a long time and are continuing to be. So if you'd have asked me though, a couple of years ago when we went to them saying, we need to remove the safe harbour steps and we need to change SOAs, we got laughed out of the room at that point. If you'd asked me would they move, I would said, no way. But here they are. They've written a letter to the government saying these reforms make sense. Another thing that they're very strong on is changing the threshold for defining a wholesale or the resale wholesale retail definition. I think it's likely as a result of this process and the managing investment scheme review the government's doing at the moment, we will see those thresholds revisited. And I think in the government's mind, it's untenable that the thresholds stay where they currently are. They haven't been amended, I think in 20 odd years, and they haven't been reviewed for a decade. The question is, what is good landing point? How do you manage that transition for people who may currently be defined as a wholesale but may not be after the change, but then also what threshold makes sense prospectively and remains relevant as time goes on? Yeah,

MH:

I think as someone said tongue in cheek yesterday, anyone that owns a one bedroom apartment in Sydney probably meets the sophisticated definition.

BB:

I think that's right. But a more relevant example is a younger person that gets inheritance may become a sophisticated investor, but they're still young and they aren't sophisticated. Vice versa. Someone may have gone off to university, done a finance degree, be building their career. They are sophisticated, but they may not meet the asset test threshold. So we do need a more sophisticated test. I think the thresholds are a pretty blunt tool, but at a headline level, if we're now moving to a regulatory framework that trusts the professional judgement advisors, we should be able to put some emphasis on that, on assessing whether or not a client is sophisticated or not. So I ultimately, I'd like to see that be where we land, but we may not get there straight away

MH:

Or ultimately end up with a framework that actually supports both through reduced documentation and clear, concise advice.

BB:

That's right. Yep. If we get the stage one quality of advice review reforms, right then the difference between sophisticated and retail falls away to some extent.

MH:

Blake, thank you for all of your hard work. Since you've taken over as CEO, it wouldn't have been easy. A lot of vested interests and very different views in the industry on QAR and many of the other things you've been working on. So look forward to seeing where it all goes, and thanks for coming on the show.

BB:

Thanks, Matt. Appreciate you having me here.