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Why is that doctors have not yet earned the title "The Wolves of Groote Schuur"? Is the differentiating element the perception of care?
Financial advice seems to be geared towards those that have money; and if you do not, then the profession has little vested interest in you. It seems blindingly obvious that we are missing a trick to reach people when it comes to financial advice. Rather than being practical, relevant, and accessible, we have created an industry that has an aloof yet in-your-face personality.
Financial health is as relevant as medical health. It makes sense to recognise that if your citizens are not able to be financially independent, or productive enough to be self-sufficient, the burden on the social system will be more than can be managed.
The economic and social ramifications can far out strip the costs of medical care, or pension shortfalls that arise due to longevity. Social unhappiness due to financial inequality is most relevant when large portions of society are not financially self-sufficient and the means to become so are not available.
Lesson one: Financial healthcare must be a daily activity
Healthcare globally is organised across three tiers – defined as primary, secondary and tertiary healthcare. The underlying principles defining each tier, the purpose, and the associated role players, can be used to define the parallel framework to deliver financial health across a country – particularly those where large parts of the population are not financially equipped.
Let us not argue the efficacy of delivering this, but rather focus on the principle that belies it. At a primary tier level, the focus is about access and this means integrating financial health into people’s daily lives. This includes (but is not restricted to) activities such as financial literacy; access to financial planning tools; core banking services; relevant core financial products; individual services for financial soundness such as tax advice and debt management; wills and estate planning; and accessibility to grants and loans.
Secondary and tertiary financial healthcare deals with less common and more complex problems that one would face. Solving these issues requires more specific skills and would require the individual to be appropriately referred from practitioners in the primary tier to more specialised practitioners.
Suitability, appropriateness of service and affordability of fees are relevant elements within this tier. Like scheduled drugs, access to services should protect individuals from abuses and other dangers. Technology and advertising, which have democratised services such as financial speculation and option-based trading to individuals not equipped to manage the associated risks, would be better regulated.
Lesson two: Treat the patient holistically
Financial advice is currently skewed, almost obsessively, towards investments and insurance. Practitioners themselves know this, but unfortunately it is how financial rewards are structured. To make financial advice practical, accessible and holistic, its definition must evolve.
The purpose of financial advice is to provide a prudent, understandable, and executable plan that firstly encompasses both financial assets and human capital; secondly optimises the trade-offs between consumption, savings and risk; and, finally, is placed in the context of the individual's aspirations and their responsibilities to a household.
This changes the way you look at the problem. The power of compounding is a popular argument promoted in the industry to encourage young people to start early to save for retirement. If you contextualised this with the value of human capital, financial modelling would reject the argument. It is of greater value for an individual to continue to invest in growing their human capital.
Similarly, one can model other financial scenarios that prove that traditional financial advice, in the absence of human. capital advancement, leads to poorer outcomes. If this is expanded from individuals to households, with inter- generational effects, it starts to explain wealth gaps and financial inequality.
Lesson three: We all know what doctors, nurses and pharmacists do
There is no standardisation of roles across financial services practitioners. It is an individual choice, and regulation relies on disclosure to protect the public. It is nai¨ve to believe that specialised practitioners can provide effective advice from a narrow base. As the industry moves towards an advice-fee model (non-commission), it becomes imperative that the industry evolves toward general practitioners that have a holistic foundation.
The requirements of the Financial Advisory and Intermediary Services (FAIS) legislation must be reviewed, advocating that all practitioners are qualified generalists before allowing financial specialisations. These general practitioners operate in the primary tier, under a limited product and service model, referring more complex problems to specialists. Alternate qualifications for pre-defined functional or support industry roles, as with nurses and pharmacists, can be structured alongside this.
Beyond policy and regulation, government has an enablement role, as self-care is a big element for success. Financial health, like medical health, needs to be introduced early in one’s education process. This is then augmented by access to tools and information.
Clinics play such a role in healthcare; libraries and post offices can be retooled to do the same, subsidised through the issue of social impact bonds. Banks and employer benefit schemes can play a significant role in financial literacy and access to practitioners. Robo-advisers must evolve from risk-profiling and fund-matching algorithms towards more integrated financial modelling.
There is without doubt many technical complexities that need to be debated, but I challenge the thinkers in our industry to seek solutions that can build on the principles of this framework.
Deslin Naidoo, CFA, is the founder of NEBULA SI, a savings and investment start-up integrating traditional finance with artificial intelligence.
This article originally appeared in the Collective Insight supplement in the 21 May edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
