Only institutions benefit from good advice standard

Speaking on the ifa podcast, Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals (AIOFP), said that the proposed good advice duty would be a negative for consumers.

“We are warning people about this move by some sections of the market to go to a good advice scenario … everyone’s going to look the same because they’re acting under good advice principles. We don’t think that’s good for consumers,” Mr Johnston said.

“We think all stakeholders should be acting in the best interests of consumers and that’s by having a best interests duty. It can’t be good advice. Good advice is really directed for the institutions to get around their liability by offering their own products, which is obviously a conflict.”

The best way to integrate institutions into the advice process, Mr Johnston said, is by allowing them to have staff that can provide factual information on their products and keeping them separate from full advice.

“If they have any consumers looking for advice for that particular product they can provide that advice, that information, it is better we call it information, to those consumers,” he said.

“So, we think there should be two categories of advisers within the marketplace. One is product information, which is with the major super funds etc, and the other one is advisers who are prepared to operate under a best interest duty, which we think is acting in the best interests of consumers.”

Mr Johnston added that there has been significant government overreach within the advice industry over the last decade or more and there needs to be room for advisers to exercise their professional judgement.

“We think advisors who are licensed should be able to use their professional judgement on when they dispense advice. If it’s just a small amount of advice, you don’t need a 200-page SOA, which is just ridiculous. It should be just a very small one pager and this should be left at the professional judgement of licensed advisers,” he said.

“We need the government to get out of commercial matters when they’ve been in there too long. They’re not very good at it, they should just take a step back and just let our industry self-regulate to some degree.”

On the question of whether the government is likely to retain the best interests duty rather than move to a good advice standard, Mr Johnston was optimistic.

“Well, Michelle Levy was appointed by a Liberal government, who are in bed with the banks, and that’s really the bottom line in this whole thing. And the ALP is in bed with the superannuation funds, the industry funds,” he said.

“Considering that the best interests duty is the jewel in the crown of their FOFA recommendations, which started in 2012, we think the chances are very low that they will drop the best interests duty because it’s worked and it’s in the best interest of consumers, which is what all stakeholders should be operating towards.

“Having good advice is not in the best interests of the consumers. And we think that advisers should operate in that manner, if they want to be totally professional.”

To hear more from Peter Johnston, tune in here.