Not all personal advice to be given by financial planners
The expanded definition of personal advice would allow institutions to give personal advice where they interact directly with the customers, according to Michelle Levy, chair, Treasury Quality of Advice Review and Partner, Allens.
During the ASFA conference, held in Brisbane, Levy said that in a personal interaction with customers general advice was often contradictory not only to the customers’ expectations but also was misleading in understanding what customers have been being offered.
“Our regulatory system at the moment acts as an impediment to superannuation funds and other financial institutions providing advice to their members and customers. The law defines financial product advice into general and personal advice and regulate them differently and it permits and provides the real incentive for institutions to use general advice to sell their products,” she said.
“General advice that does not take into account the circumstances of the client and it can lead to very poor customer outcomes.
“In a personal interaction general advice is contradictory not only to the customers’ expectations but what they think they are getting.
Levy stressed that general advice warning was often ignored or misunderstood by customers.
“So, my first recommendation has been to expand the definition of personal advice so in a personal interaction with the customer the institution, when it is making a recommendation, will be generally giving a personal advice.”
Further to that, she said, with drastically declining numbers of registered financial advisers in Australia it was no longer feasible nor necessary for all personal advice to be given by financial advisers.
“More importantly I don’t think it is necessary for all the personal advice to be given by a financial adviser.
“Not all advice is hard and even when it is, technology can do a lot. So I recommended that advice be given by someone who is not a registered financial advisers where the person, the customer , the member does not pay a fee for that advice,” she said.
“And because that person is not a financial adviser I have also recommended that they have a duty to give an advice in the best interest with their client. This is not because I think the advice should be of poorer quality but rather because of duty to act in the best interest requirement is a duty that should be filled on the particular relationship between an adviser and a client.
“It does not make sense to impose a duty to act in the best interest of the client for an employee of superannuation fund, or bank or insurer, as they are paid by an employer to do what their employers ask them to do and often to say what their employers tell them to say.”
Levy also recommended that that a person who would offer personal advice would be required to “give good advice”, described as a fit for purpose advice which is relevant to client’s circumstances.
The duty of providing such advice would sit with institutions which would determine what the good advice was and how it would be determined.
“If the advice is given by an employee, the institutions will need to decide how much training they need or how much support they can be given digitally.
“Increasingly, I expect that the advice will be provided digitally or with the assistance of an algorithm or another software. This will lead to a better quality not poorer quality of advice. The position is different where advice requires judgement and discretion and that is a role of a financial adviser, a specialist,” Levy concluded.
You couldn’t make this crap up. No duty to act in a clients best interests because you just do what your employer tells you to do. We all know where bank and any institutions moral compass lies. RC number two on the way with professional advisers left to foot the bill again.
“The duty of providing such advice would sit with institutions which would determine what the good advice was and how it would be determined”.
How can govt simply whitewash the outcome of the Royal Commission and go back to allowing the same institutions the ability to decide what good advice is. We once again will have bank tellers / industry fund call centre staff promote and “suggest” to a customer that xxx super account is in their best interest without delving deeper into their goals and objectives. 10 years time it’ll be Royal Commission 2.0 when they realise the consumer is once again screwed over.
OMG are you serious Levy. Why did we bother with the ten years of pain of a Royal Commission. The super funds now think they are advisers. You couldn’t create a bigger ‘Conflict of Interest’, turning product floggers into advisers. OMG is all I can say. Unbelievable!!!!
Michelle Levy has destroyed the profession for Relevant Providers, but she will keep her corporate clients happy. QAR has been a disaster. If a FP student is reading this comment, it is not too late to choose another industry/profession to work in.
Really…?
“More importantly I don’t think it is necessary for all the personal advice to be given by a financial adviser.” this statement itself is an insult to any of us who remain as registered advisers with ASIC.
The findings and recommendations of Ms Levy exhibit complete disregard of the years of angst and agitation caused by increasing education standards and ethical requirements ordained by the Hayne RC…the exact things/requirements that have caused so many advisers to exit the circus currently known as financial planning.
The last ten years have been a witch hunt on FPs, dressed in the guise of increasing professionalism and protecting clients. I have been an early adopter of the education standards, increasing professionalism and protecting clients. Now, it feels like I’ve wasted so much time and money only to have Ms Levy throw my effort in my face by opening the gates to institutions once again providing advice and seriously diluting consumer protection.
By contrast, Ms Levy’s QAR has held a hidden agenda, focused on attacking the remaining FP community.
And still there’s not been a declaration of conflict of interest from Ms Levy, this despite it being clear she’s in bed with the institutions.
You can not make this sh!t up!
She is a walking contradiction.
Ms Levy, on the same basis lets have:
Ms Levy, you are off your head.
Ms Levy, you are paid to FLOG PRODUCT and that is clearly all you care about.
Ms Levy, why would any Profession even exist, can’t product providers, algorithms and call centres do it ALL ???????????
I’ve just set up FASA. Financial Advisers Super Fund of Australia. We’ll all be shareholders and Directors, and we’ll be able to write advice on a back of a beer coaster. Advice of course will be free too. Just a small ongoing fee of 1.9% Management Fee, but given disclosure requirements it really only costs $1.50 per month to run the fund. You won’t need your FASEA when you got your FASA.
Been saying that for a decade – the FPA/AFA should have done exactly as you suggest, set themselves up as trustees/RE/RP etc, basically an open investment menu so any form of planner can utilise and we all become licensed under their one AFSL as ‘reps’ – replicate exactly the union-industry super model and beat them at their own game.
If they had the balls & entrepreneurship back then, the assoc’s would be rolling in $$ and have had a huge warchest to fight all the ensuing idiocy we’ve endured for that entire period and still are.
And before anyone says, ‘nah impractical, couldn’t work’, the unions managed it, why can’t others?
Absolute Joke!
After all that was done to lift advice standards. Now its a free-for-all where ‘Superannuation Product Providers’ (industry Fund Trustees) can give ‘Personal advice’ without any training, adequate knowledge, or skill sets to give full comprehensive and unbias Financial Advice. First of all Super is only a small portion of comprehensive personal advice, so why are these funds being given the ‘green light’ to advise??
Are Australians now going to receive their Personal Advice from Indian call centres. Are you serious!! $3.3 Trillion of Australians hard earned savings being administered by any imbecile that happens to get the trustee job. REALLY!!
Do you think any of these trustees will recommend a product outside of the ones they control, or in the best interest of the client? Absolutely not!! They will just tell the client that there own product is the one they need. How much more corrupt can you make advice. It’s completely unethical. How ironic that advisers had to take the FASEA exam which focussed on Ethics or be kicked out of the Industry, and then the Financial Services Minister turns around and creates the most unethical situation the Advice and Super industry has ever seen. Talk about letting the fox in the henhouse.
HUGE CONFLICT OF INTEREST HERE – Unbelievable!!!!!
Nailed it. Michelle Levy thinks these super funds will refer clients with more complex affairs to you…. that’s a sad reflection of her knowledge of super funds.
I’m assuming that all these additional ‘advice’ providers will be required to pay the ASIC levy too???????
She said “It does not make sense to impose a duty to act in the best interest of the client for an employee of superannuation fund, or bank or insurer, as they are paid by an employer to do what their employers ask them to do and often to say what their employers tell them to say.”
Will the client like wholesale investors be required to sign off on a declaration that states “the advice provided was not in your best interest and the provider is only required to act in the best interest of the bank, superfund or insurer”.
Ms Levy states that super funds should be able to give consumers “some but not all advice”. They currently can give “some personal advice” that relates to the super account of the member under the “intrafund advice” carveout. They can currently provide advice as to members asset allocation and investment options. Financial advisers have to go through a whole long process and prepare a SoA to give even simple advice.
If super funds want to provide more than intrafund advice, they can also have qualified and licensed financial advisers – there is nothing to stop them from doing so even now. It is just that super funds do not want to go through the complex process of providing advice like financial advisers have no choice but to do.
She also says that with stronger consumer protections in place and conflicted remuneration eliminated, large institutions are in a better position to give advice. What can be more conflicted remuneration than receiving a salary and bonuses from your employer (the super fund) and being able to recommend only your employer’s super fund in order to “retain” the member’s funds? How does that differ from receiving a trail commission?
Michelle Levy says that super funds are currently providing personal advice under the guise of “general” advice. This has been known for some time but no super fund has been caught out for doing this other than Westpac (because it is easy to bash a bank). If an adviser does this sort of thing, they can go to jail. If a super fund does this, it’s okay, just change the law to allow them to do this legally.
Of course this will create a two tier system. What happens when most “advisers” just join large institutions because this will be the easier path – get a salary and bonuses and not have to find clients. Most advice will then be conflicted and we will have come full circle.
Product providers should just be able to provide product information and very simple one off advice relating to the member’s interest in that super account keeping in mind the sole purpose test. Any advice that considers their home loan etc will breach the “sole purpose test” in any case and taking the fee for this advice from the super fund is not justifiable.
And product providers should provide the client with a big and bold disclaimer to state that their advice is limited and may not be in their best interests.
Does this mean under the QAR recommendations a company or product provider could give personal advice through its employees but if a qualified adviser wants to provide personal advice they need to go to the expense of getting set up, pay licensee costs etc to do so?
Those issues aside it’s a staggering swing back to the bad old days of product provider vertical integration. Why not just simplify the overbearing red tape but keep the relevant consumer protections in place.
ie trust advisers as professionals to make appropriate recommendations without having to write a 50-100 page document nobody ever reads.
Stop the witch hunts on advisers and licensees that mean they have to employ 30% more staff to keep up with ASIC’s requests and overbearing paperwork.
There are ways to lower advice costs while keeping advice standards high but allowing product providers to give “advice” through untrained call centers or sales staff aint it…