Old advice foes need to stay out of the trenches on QAR
ANALYSIS
The last thing the financial planning profession needs right now is for the consultative processes around the Quality of Advice Review (QAR) to degenerate into trench warfare in which groups such as Choice and some financial advice groups seek to refight the battles of the past.
The proposals paper delivered by the chair of the QAR, Michelle Levy, must be viewed in its totality as a skeleton which can be fleshed out via a comprehensive consultative process.
Thus, the level of emphasis placed on Levy’s suggestion that the best interests duty might be replaced by an “obligation to provide ‘good advice’” must be seen for what it is – a suggestion intended to give rise to discussion around altering some of the regulatory prescription inherent best interests.
Equally, her proposals around superannuation funds and the use of intra-fund advice must be seen against the background that many independent financial advisers have openly admitted “sacking” some low value clients leaving them little option about where they can access affordable advice.
Contrary to assertions by consumer group Choice, Levy is not suggesting a diminution of consumer protection, rather she is suggesting that it needs to be made fit for purpose in terms of the day to day reality of advisers providing advice.
What is being emphasised by most of the major organisations representing the financial advice profession is that they do not want to squander what they regard as an important opportunity to fix the problems which have bedevilled the sector and which have placed financial advice beyond the reach of most ordinary Australians.
All but one of the organisations seeking to represent financial advisers, accountants and stockbrokers are part of the Financial Advice Working Group (FAWG) and have been seeking to deliver a united approach on what they see as the key issues raised by the QAR process. The Association of Independently Owned Financial Professionals (AIOFP) is not part of the FAWG.
Association of Financial Advisers (AFA) chief executive, Phil Anderson, made clear to Financial Newswire, no one wants to walk away from consumer protection and no-one wants to miss what represents a big chance to fix the problems which have bedevilled the sector.
“I’m optimistic that we can make a real difference,” Anderson said. “It represents a significant chance which will be lost if it becomes a squabble.”
Stockbrokers and Investments Advisers Association chief executive, Judith Fox said she welcomed the proposals outlined by Levy as the basis upon which to have a good look at the future shape of the profession and providing access to good quality financial advice.
As well, SMSF Association chief executive, John Maroney particularly welcomed the proposals regarding removing the requirement for Statements of Advice (SOAs) to allow the profession to provide financial advice in a way that suits their customers, stating it concurs with his association’s view that certain types of financial advice should be able to be provided in simplified form.
“We have long argued for the need to recognise the professionalism of the sector, cut excessive red tape, and put the consumer front and centre in the advice equation.
“We have also stressed that how advice is provided to clients needs to be commensurate with the level of complexity and the number of issues to be addressed. Simple, single-issue pieces of advice should be able to be delivered through a simple letter of advice.
“Currently, SOAs are risk management documents with a significant amount of their content compliance oriented. They have stopped being a consumer-centric document for the provision of financial advice and information.
“This is why the Association also agrees with the Proposal Paper when it notes that it can be difficult for consumers to get helpful advice, especially simple one-off advice, and get it at an affordable price.”
The starting must be consumers pay for their Own Advice. Any system of Hidden Commissions by Super Funds charged to All Members when most Members pay Hidden Commissions for No Service is a complete RORT.
The sheer Hypocrisy of ISA Funds bashing Advisers for 20 years about Commissions and now for ISA Funds to Now Chant Commissions approval is beyond ridiculous.
Industry Super = Biggest Chargers of Hidden Commissions for NO SERVICE.
If the annual fee consent renewal forms (that don’t exist in any other nation on earth) were abolished, many of the “low” value clients could be supported. That is the issue.
Steve, It’s just the fee consents of course. Elements of FASEA have go.
Std 3 is not possible to fully comply with for any professional. Even a doctor that tells a patient to come back for results that are negative is conflicted – click clack on the Medicare card. Why not a phone call or an SMS?
You are also obligated to make “reasonable enquiries”, you don’t do this and you are liable (for advice that you didn’t give). Therefore unless you are regularly seeing a client and they are paying a reasonable fee for this time, you can’t comply with this obligation either.
An SoA for a new entity (existing full service client) for more than $15k invested, give me a break.
AML (especially for entities) is ridiculous although not part of QAR.
The list goes on and on.
Agreed. Time to look at the old “Customer Advice Record”. A simple 1-page summary of what was advised, with what product & at what cost.
Back to the future. I have proposed this in the past. Was told it would never happen.
Well put Mike. I fear this may not be reality. Even with these temporary alliances between the JAWG, licensees, and others you get the sense that as the detail emerges (what people really want), the horse-trading will then commence. Those with the biggest and best lobbying teams will win the day. Given the weakened and ideologically split state of the advice associations, the FSC and ISN will get their way.
This process will expose the advice professions’ inability to have a consumer-recognised professional qualification. Whether you are 20 year professional IFA or a 6-month newly trained industry fund ‘retirement coach’ you will just be an authorised rep.
Levy has not proposed removal of Best Interest Duty for licensed financial advisers. She has proposed removal of BID from the Corps Act, because BID is now covered by the Code of Ethics. BID in the Corps Act is one of the many redundant layers of regulation that were never removed when new layers were added. It only serves to drive up costs and complexity for consumers, without providing any additional protection.
Levy has also proposed that bank and super fund staff who are not licensed advisers and not subject to the Code of Ethics, should be able to provide advice that is not subject to a Best Interest Duty. This is NOT the same as removing Best Interest Duty for advisers, as erroneously claimed by Choice. Consumer groups are right to oppose this element of the proposals, but they need to properly read them first before launching into their kneejerk adviser hate vitriol.
Agree! The Code of Ethics will continue to hold (professional) advisers to a higher standard than that required by the law. For entities and individuals that do not understand the intersection between the law and the code of ethics, they really need to address this deficiency in their knowledge before speaking!
It really is a case of looking through the statements to get the insight to where this is heading. My reading has BID out but not safe harbour. Isn’t that leaving the cart unshackled to the horse? BID wasn’t the problem, it has always been the tick-a-box safe harbour steps to ‘demonstrate compliance with BID’. If Levy wants a principles based approach to legislation then the adviser must be able to use their professional judgement to determine whether they have satisfied the BID or provided “good advice” if that is BID’s replacement. Like everyone I would love to see the SoA gone. It hasn’t become anything, it has always been an inward looking (licensee focused/ASIC) compliance document. This is because lawyers got to it and created the (compliance) fear. The document never has been client focused and designed to provide advice that a person could use to make an informed decision. However, I don’t think for one moment that the compliance will go out with the SoA as such. The file records will be the makings of the current SoA but at least the client doesn’t need to have it presented to them (unless they ask). Cost savings won’t fall from the removal of the SoA unless licensees stand up to the lawyers and insist on allowing advisers to use professional judgement in how they pull advice together. Advisers aren’t necessarily skilled in this after decades of being brow beaten so that will be a challenge for licensees to mount if they truly want change to occur. As for unlicensed advice, Accountants can’t argue to be able to provide but not allow superfunds to. An accountant wants to be able to state a client should contribute to the existing superfund and draw a pension from the existing fund. How is this different from allowing superfunds to give this simple advice? The simple (housekeeping) advice of contribution and pension drawings is low risk and should be able to be provided without too much cost. Where the initial musings of Levy don’t sit well is in the concept of “group fees” for APRA funds to cross subsidise advice to individual members. That is anathema to fair and reasonable. If I am 20 years old and only managing to get SG into super and won’t be talking about extra contributions let alone pension for decades, why should my measly balance support those closer to middle age and retirement? Anyone that provides super advice should charge the person directly. We have to move away from the concept that simple advice has little (financial) value. It is only simple because we have trained and developed the skills to be able to rattle it off. We should be paid for giving any sort of advice and the community should respect the provision of a skilled service. Not having to ask the client what their grandmother preferred for breakfast in 1950 will help reduce the compliance burden that has driven up costs so that even simple advice is not affordable.
Choice and Stephen Jones need a lot of education about financial advice and if there are risks here, it is with the misinformed. I hope tribalism doesn’t muddy the waters as the misinformed will latch onto anything to win the day.
In all the public commentary on this, I am yet to see a definitive list that is in order of importance of what we want the sector to look like after this review. If we don’t prioritise our demands and keep consistent with the messaging, we will get what the misinformed think is good for us.
My rough list may be:
Thanks for your very well thought out and considered post. I’ve picked up in Michelle’s previous comments that the SafeHarbour steps would go replaced by the Principle’s based approach in the Code of Ethics. I could be wrong…
I’d like to agree with your list and add the folowing:
Thanks, reminded me of another important issue – the need for ASIC checks and balances. AFCA reviews advice but no review panel/tribunal reviews ASIC’s decisions. The ATO is checked by the AAT when a taxpayer wants a decision reviewed. This process then informs the ATO’s approach to, not only decision making, but the public guidance they provide. ASIC needs this inbuild break on their unfettered interpretive power.
[A check box for maintaining a good client file is a tool only, not designed to take away adviser judgement, just to ensure some efficiency in admin functions. Most advisers have fantastic client files in their heads but the info needs committing to a file.]
I don’t believe you can have “tick box” check list for good advice and then want to be regarded as professional. The ideas compete with each other. You are either a professional and exercising judgment or you are regulated by government (law) which means you aren’t a professional. Lawyers, doctors and accountants are all regulated by their professional associations, not the government, and they don’t operate on checklists.
I say, remove chapter 7, remove ASIC from advice, remove AFCA.
Professional standards board with teeth, to licence, regulate, remediate and promote the profession.
ASIC can regulate product, not advice.
Financial advice be able to be given by financial planners and that’s it.
Personal advice should be fee for service. Why should super funds be able to charge members for personal advice if they don’t use the service? and why can’t it be fee for service? retirement planning it not simple its complex.
Lets not forget hidden commissions were terrible and financial planners were bad people because we received commissions but now this seems ok according to Michelle..we might need a royal commission into the governments attack mostly on financial advisers operating small businesses. At least the advisers that were being paid commissions would give these clients face to face service, unlike intra fund advice do have to give anything everyone will just be charged for it.
Let product providers sell their products direct if that what the governments clearly wants to happen, but lets not call it financial advice if a financial planner is not giving the advice.