Treasury review warned it risks repeating FASEA mistakes

There is a difference between financial advice “clients” and “investors” and Treasury’s Quality of Advice Review needs to recognise that fact.

That is why the Stockbrokers and Financial Advisers Association (SAFAA) is recommending that the terms of reference for what represents a major overhaul of the financial advice regime need to be amended.

That is because the inquiry terms of reference specifically reference “retail investors” rather than clients.

The SAFAA claims that in the absence of amendments to the terms of reference the inquiry will perpetuate the “one-size-fits-all” approach which undermined the effectiveness of the Financial Advisers Standards and Ethics Authority (FASEA) regime will not be able to deal with the full range of clients that need to be considered.

“We consider that regulators and government have often applied a financial planning lens to the financial advice process to the disadvantage of stockbrokers and investment advice firms and their clients, as well as other specialised advice services,” the SAFAA submission said.

“Consumers want different advice for different needs and the regulatory environment must accommodate consumer preferences and requirements. It is important that regulators and government understand the way the stockbroking and investment advice industry works and don’t seek to shoehorn all consumers into the one advice service.”

“The issues resulting from a ‘one-size-fits-all approach’ to financial advice have created undesirable and unintended consequences. We have previously pointed out that one of the most egregious examples of a ‘one-size-fits-all’ approach to financial advice impacting the stockbroking and investment advice industry was the approach by the Financial Adviser Standards and Ethics Authority (FASEA) to the education standards and Code of Ethics (which were administered by FASEA until 1 January 2022),” the SAFAA said.

“FASEA’s lack of understanding about how stockbroking and investment advice differs from financial planning provided significant challenges to the stockbroking and investment advice profession. It is an important example of the damage that can be done to an industry when those imposing standards upon it do not fully understand the way the industry works, or take a narrow view that excludes sections of the industry.”

“It is vital that the problems caused by a myopic approach to financial advice not be repeated and that the review consider the full range of financial advice when undertaking its work,” the SAFAA submission said.

“We note that stockbrokers and investment advisers provide advice to retail investors, yet other advice services may not necessarily be advising on investment issues. For example, financial planners or risk advisers may be advising on insurance only, which would not be normally considered an investment.”

“Financial advisers provide advice to retail clients, regardless of the advice service provided. Clarifying language in the final terms of reference, and referring to retail clients rather than investors will clarify that the review is covering the entire field of advice services.”