1.1 How did the financial advice industry emerge?

Traditionally, the business of banking comprised lending, deposit-taking and the provision of transaction services.[1] Until the 1970s, the reach of the funds management sector – that is, entities that pool and invest money on behalf of customers – was limited. At that time, the sector was composed largely of superannuation and life insurance companies.[2]

From the 1970s, Australia began to deregulate its financial markets. Restrictions on bank interest rates and liability structures were removed; foreign banking was made easier to access; the Australian dollar was floated.[3] The financial sector expanded. At the same time, growth in the size and liquidity of securities markets allowed more diverse financial products to develop.[4]

From 1983, successive changes to the tax treatment of superannuation increased the complexity of superannuation but also established it as a vehicle for compulsory saving. These developments included the incorporation of superannuation into employment awards in 1986 and legislation in 1991 imposing tax penalties where employer contributions were not made.[5] With greater amounts of savings invested in superannuation funds, Australians had a far higher exposure to capital markets, and increasingly began to seek financial advice.

Before the early 1980s, Australians who required financial advice often went to their bankers, brokers, accountants and insurance advisers.[6] As the market for superannuation and investment products grew, the life insurance companies and other financial institutions that manufactured financial products looked to financial advisers to sell them.[7] At that time, most financial advisers came from a background of life insurance, in which a sales-driven, commission-based culture prevailed and comprehensive advice was not commonly sought or given.[8] These were the roots of today’s financial advice industry, and the culture has endured.

The 1990s brought even more of the Australian public into the market for financial products and services, and therefore advice.[9] A series of privatisations (such as CBA, Telstra and Qantas) and demutualisations (such as AMP and NRMA Insurance)[10] increased share ownership. Further deregulation of the financial sector contributed to a surge in credit provision and the design of new and more complex financial products. These developments in combination with the prevailing low interest rates raised household indebtedness and increased the value of market-linked financial assets that households held.[11]

It was in the 1990s that banks began their expansion into wealth management.


[1] Malcolm Edey and Brian Gray, ‘The Evolving Structure of the Australian Financial System’ (Paper presented at The Future of the Financial System Conference, H C Coombs Centre for Financial Studies, Kirribilli, 89 July 1996) 89.

[2] Malcolm Edey and Brian Gray, ‘The Evolving Structure of the Australian Financial System’ (Paper presented at The Future of the Financial System Conference, H C Coombs Centre for Financial Studies, Kirribilli, 89 July 1996) 7.

[3] RBA, Submission to the Financial System Inquiry, March 2014, 16 <http://fsi.gov.au/files/2014/04/Reserve_Bank_of_Australia.pdf>.

[4] Malcolm Edey and Brian Gray, ‘The Evolving Structure of the Australian Financial System’ (Paper presented at The Future of the Financial System Conference, H C Coombs Centre for Financial Studies, Kirribilli, 89 July 1996) 1720.

[5] Malcolm Edey and Brian Gray, ‘The Evolving Structure of the Australian Financial System’ (Paper presented at The Future of the financial System Conference, H C Coombs Centre for Financial Studies, Kirribilli, 89 July 1996) 35.

[6] Janet Cowan, William Blair and Sharon Taylor, ‘Personal Financial Planning Education in Australian Universities’ (2006) 15 Financial Services Review 43, 46.

[7] Robert Brown, ‘Reinventing Financial Planning’ (2008) 3(1) Australian Journal of Financial Planning 17, 20.

[8] Robert Brown, ‘Reinventing Financial Planning’ (2008) 3(1) Australian Journal of Financial Planning 17, 20.

[9] Background Paper No 7, 5.

[10] See also ASX, The Australian Share Ownership Study (2014) 26–7 <www.asx.com.au/
documents/resources/australian-share-ownership-study-2014.pdf>.

[11] Marianne Gizycki and Philip Lowe, ‘The Australian Financial System in the 1990s’ (Paper presented at The Australian Economy in the 1990s Conference, H C Coombs Centre for Financial Studies, Kirribilli, 245 July 2000) 187.