Term deposits on Hayne’s terms

The findings of the Hayne Royal Commission into the financial services sector have consumers placing their relationship with advisers under a microscope. Is this product genuinely the best for my circumstances? Do I fully understand the ins-and-outs of it? Has my adviser been paid to promote this product over another? These are the concerns today’s clients have with the concept of financial advice.

Trust and transparency have never been more important for the 18,000 financial planners who provide advice in Australia. And those virtues are at an all-time low. A recent survey by Roy Morgan Research shows the general public rated planners low on ethics and honesty, even before the Banking Royal Commission. And after the Royal Commission? Well, that public sentiment was ratified by some damning findings in ASIC’s January 2018 report. Over 75% of reviewed advice files were not compliant with ‘best interest duty’, including an investigation of the five biggest banks which showed two-thirds of client investments were allocated to in-house products.

Following the Royal Commission and the subsequent flood of media attention, an adviser’s decision-making and the rationale behind advising a particular product over another is going to become even more important.

Is this product truly in your client’s best interest?

Financial advice now needs to come with increased transparency and disclosure that financial incentives are not influencing behaviours away from acting in the clients’ best interest. Clients already have existing expectations that financial advisers understand the subject matter knowledge well enough to advise them, as well as the skills to clearly weigh up the circumstances of the investor and be able to fill in any blanks on the client’s position. Now clients want to know if  the adviser has conducted a reasonable investigation into the financial products that might achieve the client’s objectives. This might ordinarily seem onerous, but technology will increasingly be able to support an adviser’s ability to compare apples with apples in a streamlined way. Aggregators of products, like Cashwerkz, already deliver this capability in the cash and term deposit market.

What will change for advisers?

Stricter disclosure for one. In instances where advisers are not independent or impartial, a statement disclosing this needs to be provided. But savvy, customer-centric advisers will go further. Advisers who can provide evidence of their decision making, or who are backed by an objective digital platform to transparently come to a decision in the best interest of their client will create a unique advantage in this environment.

What about term deposit advice specifically?

Roughly 10 per cent of Australians have a term deposit account. Whilst this product is a relatively straightforward product, term deposit disclosure statements can still be confusing. Clients and advisers who fail to act fast enough in the lead up to  funds maturing can unfortunately lock themselves into a suboptimal rate and term, potentially leading to extra administration hassle and costly break fees. Misleading advertising has also come under fire again – highlighting the confusing marketing practices first uncovered a decade ago. The Royal Commission investigated a continued failure of institutions to inform term deposit clients of the short-termism of high promotional rates. Clarity and communication on promotional rates has never been more important.   

How fintech can be the answer?

There are systems in the market that can  use precise rules-based algorithms to analyse contents of advice documents and assess whether an adviser has failed their best interest duties. A great example of this is the TIQK system which can review advice digitally and quickly to highlight any potential failure to comply with the ‘best interest duty’.

Similarly, Cashwerkz, which is independent and not owned by any financial institution, is a secure cash management platform which allows advisers to research market competitive rates, invest, top-up, withdraw, review and switch term deposits with a few easy steps. Cashwerkz is paid directly by the banks. No fees are payable by the  adviser or the client meaning advisers can provide an objective explanation for their advice, and recommend and easily switch products in the client’s best interest.

An adviser’s own vigilance to comply, thorough product knowledge and innovation in the fintech world will be key to ensuring clients know their money is being managed in their best interest.

To talk more about best interest duty for your clients, call Rob Hay on 0423 345 975.

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