Can banks and super funds really provide ‘good’ advice?

In her long-awaited final report for the Quality of Advice Review (QAR), Michelle Levy declared vertical integration a “part of the answer” to the problem her review was trying to solve - the problem of too few Australians having access to financial advice.

“Financial information, guidance and advice should be available throughout our lives and it should respond to our needs and even anticipate them,” Ms Levy said.

“In my view, this means there should be a variety of providers. Not all advice can be provided by financial advisers, and nor should it be. The 16,000 financial advisers are required to hold relevant degrees and to comply with professional standards. They are entitled to charge a fair fee for their advice.”

Ms Levy said this fee will always be out of reach for some people and that, even when it is not, not everyone will want to pay a financial adviser.

“Financial advisers themselves want to provide comprehensive advice to clients with whom they have an ongoing relationship, as they have studied and trained to do, rather than to provide incidental or piecemeal advice on financial products,” she said.

Her next comment suggests advice will only be provided by someone who has something to gain: “The only person who is likely to provide financial product advice without charging a fee for that advice is a person who benefits in some other way from providing the advice.”

But how would someone benefit from providing financial product advice without charging a fee? If only there was some other way to remunerate them, a commission payment, that could be introduced.

But commissions were not recommended. Instead, Ms Levy believes the "obvious candidates" to provide advice are the financial product issuers who charge fees for their financial products – banks, insurers, superannuation funds and investment managers.

“They will provide financial advice about their own products because they want to attract customers and retain existing customers.”

Ms Levy’s recommendation is for vertically integrated product and personal advice providers to be bound by a duty to provide ‘good advice’. Her argument is that the best interest duty fails to deliver useful, good advice outcomes for consumers.

“Product issuers recommend their products to customers every day,” she said.

“In many cases they are doing so using general advice. When a person provides general advice, they do not have a duty to consider any of the customer’s needs or circumstances and they do not have to act in their best interests. And, when they provide personal advice, the best interests duty does not guarantee good advice.”

The move to allow banks and super funds to provide ‘good’ personal advice will be met with heavy criticism by many independent financial advisers, who can no longer receive commissions due to inherent conflicts of interest.

It is interesting to consider how differently the Hayne royal commission and the Levy review view vertical integration. One perceives it as an issue and the other an opportunity.

While he didn’t recommend that vertical integration in financial services businesses be dismantled, Commissioner Hayne did make recommendations that focused on primarily eliminating conflicts of interest. He also noted that these recommendations, in combination with other factors, impact the profitability of vertically integrated entities.

Kenneth Hayne was of the belief that fewer vertically integrated models would be a positive thing for consumers as that would reduce conflict of interest.

But Michelle Levy, tasked with finding ways to make advice accessible to more Australians, believes that vertical integration is part of the answer.

The Albanese government has a big decision to make on this one. It all comes down to which is more important: removing conflicts of interest or making advice more accessible?