The focus on compliance and the Royal Commission, whilst significant, has been a distraction to the inevitable changes that will evolve in the financial services industry.
This will result in a swift changing of roles for those flexible enough to respond.
Change will enable more choice for customers and we see it playing out in a range of ways including:
Speed
Technology will enable straight through processing of financial instruments such as mortgages and SME finance. No surprise that the technology is available but the industry is yet to feel the brunt of it.
Mandatory Comprehensive Credit Reporting (introduced last year), will allow participating lenders to have both a more consistent debt servicing assessment process and transparency of past credit conduct. This time saving and "data science" will better grade customers and deliver a better match for the differing risk appetites of financiers.
Pricing & Risk
The data science will enable (and force in some cases) financiers to also provide more transparency around their own credit positioning. The "Black Art" of automated credit decision models will deal in more widely communicated and understood outputs. This will enable financiers to distinguish themselves by their risk tolerance and resultant pricing.
In a finance world where many lenders and their products can be seen as homogeneous, this will be a welcomed development.
Data is King
More and more, there will be less requests for the traditional and historical forms of financial information such as financial statements and tax returns. As a borrower, your first request from a potential financier will be "show me your data".
The initial credit evaluation will be shorter which will reduce the need for human intervention and manual processes. The initial credit feedback will be more immediate, direct and at times confronting. In a world screaming for greater financial literacy this is a wonderful opportunity.
With this greater data sharing comes risks too. Data protection and integrity will continue to be a massive growth industry. For those concerned about privacy, or conversely excited about innovation, take a look at the leaders of Fintech (China) where some of the insights are extraordinary.
Compliance - Here to stay but will evolve
In a society focused on rights, and not responsibilities, compliance will remain at the forefront. Much like technology companies, which employ more and more resources to monitor content, there will be an important role for regulators to play.
The challenge over recent years (and obvious breach cases aside), is that regulators don't actually always know exactly what they are looking for or the specific outcomes they are looking to achieve.
Greater data transparency and customer awareness will allow them to be more focused in challenging the validity of advice. Imagine evaluation like "what was the applicant's Debt to Income Ratio" and whether it is understood, will be less open to interpretation.
IMPACT FOR FINANCIAL ADVICE
Players in the financial industry are varied and many. For those providing advice on debt keep some of the following in mind:
Less Time, Less Remuneration
With innovation comes competition. Straight forward finance fulfilment means advisers can spend a greater proportion of a transaction time on actual advice (which currently for finance brokers is at a record low level).
We anticipate that the more straight through transactions will yield less remuneration for advisers, but allow them to do more.
Define & Refine
The RC inferred removal of the traditional distinction of advice for retail customers, between financial planning and mortgage advice. This makes sense with the availability of data and the expectation of understanding your customer.
If they follow the trends of overseas, debt advisers will find ways of expanding their in-house reach into related services such as insurance and investment advice.
Industry Consolidation
In part linked to the above, and considering the growing complexity and responsibility of running a small business, industry consolidation is inevitable. The numbers tell a tale too.
There are more brokers in Australia than the U.K. and only around 2.5 times more in the U.S. - that imbalance will not sustain.
Finance as a "Profession"
The challenging environment we have faced brings opportunity. More than ever, debt advisers are better armed and prepared through the period they have had to work through. Even in a static market, this can result in "share shift" towards the broker channel across all mediums. It is hard to bring back distribution channels after you have already created them.
Validation is all around the industry. Channel numbers have been widely quoted (both here and overseas), though decisions such as the NAB's one to drop its Introducer Program is a great one.
This should also put on notice some brokers that merely provide a set of financials to a banker. Ultimately a greater depth of presentation and analysis will be expected.
We live in interesting times (who would ever have thought we would have a 10 year Government Bond with a 1 in front of it) and there is so much discussion about what our world will look and be like. There is however a role for good advice and support; how it is delivered will be different in the future.