The Association of Financial Advisers (AFA) has issued its submission to the advice review, pinpointing an area that could be improved.
Namely, while AFA is a big supporter of the QAR exercise and welcomes many of the proposals, it flagged the proposal to allow people who are not relevant providers to provide financial advice and to broaden what can be provided under intra-fund advice as the “most contentious issues”.
“Whilst we do not support these proposals in the form that they have been presented, we do believe that with careful modification, they can be made to work,” AFA said.
It noted that it does accept the proposition that 16,000 financial advisers cannot meet the advice needs of all Australians and that simple advice will never be the focus of professional financial advisers.
“We, therefore, accept that framework could work with sensible controls including limiting it to simple advice and with a new higher education standard being applied to people who provide personal advice who are not relevant providers,” the association said.
Proposals AFA strongly supports
Recommendations from QAR lead Michelle Levy that AFA strongly supports include the rationalisation of the best interests duty, the repeal of fee disclosure statements, and the removal of the mandatory requirement to provide financial advice documents (SOAs and ROAs).
“We appreciate that the move from a best interests duty to a good advice obligation is controversial; however, we think that there is much in this that can be implemented to achieve better outcomes for clients and to simplify the advice process,” AFA said.
“We support a range of other proposals including the change in the definition of personal advice and the removal of DDO reporting obligations. As a package, these reforms could significantly reduce the cost of providing financial advice,” it added.
‘We should all be very supportive’
AFA also commended the QAR team for being “very consultative to this point”.
“We should all be very supportive of this process and the work that they are doing. We need to recognise that this is the most significant opportunity to achieve fundamental reform and if the advice profession does not get behind it, then it will be very difficult to achieve genuine reform,” AFA said.
The next stage of the QAR review will include a close look at life insurance advice and the issues of commissions.
“We will continue to advocate for the retention of commissions and also put forward ideas for how the provision of life insurance advice can be more economically viable, particularly for those younger clients, and those with simpler needs who do not pay as much in premiums.
“This will be an important focus area for us over the next few months in the lead-up to the finalisation of the QAR report in mid-December,” AFA concluded.
When the QAR recommends removing the “best interests duty”, I note that the QAR still demands mandatory compliance by relevant providers with the Code of Ethics. The Code of Ethics will still require the adviser acts in the client’s best interests – see Standards 2 and 5 of the Code (see page 17 of the QAR). It seems to me that relevant providers will still have to meet the concept of “best interests” – but this time without any “safe harbour” that acts as an adviser’s defence (partical or otherwise) to potential client complaint if the adviser meets the 7 safe harbour tests.
Without these specific defences the adviser is left with an undefined “grey” notion of what is in the client’s best interest. So, in this new uncertain world without specific hard-coded defences for the adviser, do we really think that ASIC and AFCA (or the Courts) will be giving the adviser the benefit of the doubt when they have to make a call as to what is in the client’s best interests? Are advisers really going to be better off in relation to this point with the recommended changes?
Remember, the current safe harbour provisions merely act as an insurance policy. Currently, if advisers do not want to meet the section 961B(2) safe harbour benchmarks they do not need to – it is not unlawful or a breach. It is just that the advisers who do that do not have the safe harbour “insurance”. Strange that so many in the industry want to ditch this insurance.
True, but in the future, we will have a principles-led code which is adjudicated by our peers (like every other profession). This will put us all in a much better position. I’m not saying this will happen in the short-term, or even before my career is over. But it will happen, eventually. Without the change to the Corps Act, then it would not be possible at all.
Financial Planners will be like Taxi Drivers – everyone will be using the services of ride share (Intra Fund Advice).
Change the name of the non relevant provider to be something other than financial adviser or planner. Sales or product adviser would be appropriate