Easton Investments managing director Nathan Jacobsen told ifa while ASIC’s consultation on affordable advice was “a great opportunity” for the industry to have a voice around the regulatory framework, the focus on scaled advice as a starting point was flawed.
“In the focus on lowering the cost of advice it became a conversation on scaled advice documents, which is not the problem,” Mr Jacobsen said.
“The problem isn’t whether you produce an ROA or SOA, the problem is no matter how scoped the advice is, the amount of documentation an adviser has to produced from end to end doesn’t change that much. So the notion of advice being delivered for $500 in that environment is flawed.”
Mr Jacobsen said the “principles-based” direction of the FASEA code, which aimed to bring advice into line with professions such as law, was at odds with subsequent guidance around the code as well as the interpretation of its principles by AFCA, which relied heavily on record keeping as proof against an adverse claim by a client.
“We’re increasing record keeping as a process of black and white interpretation of the rules at the same time as the industry is being forced to professionalise, and at some point those two have to recognise each other,” he said.
“The guidance on how to interpret the standards [and] the connection to what happens if something goes wrong … if a client complaint ends up at AFCA, AFCA’s going to solve that by looking at records.
“That’s where the comparison to the legal industry falls over, which is that their obligations are to act ethically and professionally, whereas an adviser’s obligation is to do that and write it all down. AFCA will rely on those records and both ASIC and AFCA will presume in the interests of the consumer in an absence of the record.”
Mr Jacobsen, who was recently appointed to head up Easton following the sale of formerly HUB24-owned licensee Paragem to the group, said government and ASIC would need to work together with industry to dismantle the conflicting parts of what had become an increasingly confusing regulatory regime.
However, he said there was also a role for licensees in providing the technology for their advisers to quickly and easily replicate the paperwork needed in the advice process, with technological capabilities playing a key role in the decision for HUB24 to take a 40 per cent ownership stake in Easton following the sale of Paragem.
“Treasury and ASIC have to play a role, we can’t solve it by ourselves, but equally I think we have to invest in the infrastructure to automate some of these things,” he said.
“The industry needs to move beyond people writing on pads and hitting keyboards to leverage machine learning, voice to text, building an infrastructure that makes that achievable without the same cost imposition.”
Mr Jacobsen’s points are correct and do a really good job of summarising the core issue around this scoped advice malarkey. If only some other groups could have presented the argument so coherently and persuasively…
That ASIC still floats around, waving away the Code of Ethics as an irrelevant consideration that they seem to never have read, is absolutely bonkers.
Snap out of it people. This is all about putting in place highly discriminatory legislation to allow inhouse tied agent salaried employees to do whatever they like, and to annihilate independent self-employed advisers with Govt opt in / compliance red tape. And the banks & the FPA are right behind it, as they are all in the same game of destroying small business advisory firms in favour of their inhouse employees. This is the 21st century version of the old AMP & National Mutual tied agency game all over again. It’s incredible discrimination against small business advisers.
In our practice we certainly allow scaled advice if the client wants it. However our internal pricing guide is roughly $2,500 for the first advice area, then $500 for each additional advice area on top of that. We do it this way because it reflects our cost structure. There is an awful lot of time consuming documentation and compliance required for a new client regardless of the scope of work. But once this is done, the subsequent topics can build off that relatively cost effectively.
Thus limited scope advice doesn’t cost significantly less than a comprehensive plan. ASIC seems to completely misunderstand this concept. They think that the cost should be proportional to the advice scope. Under the current regulatory environment it simply doesn’t work that way.
…and the advisers (former advisers) voting with their feet and leaving the industry in 1000’s while barely any new entrants come in still hasn’t dawned on an out-of-touch Danielle Press….
Agree 100%. Comprehensive and holistic Advice is scaled now. I still remember the case where the adviser lost at the ombudsman because the clients dog died and they didn’t recommend pet insurance. Financial Advice is more than the Corporation Act and ASIC Regulatory guides. It’s nine plus regulatory bodies then add in the industry associations and the licensee interpreting those multiple laws and regulation
Very sensible comments in part by Nathan Jacobson. The FASEA code and the highly excessive amount of regulation, originally designed by Bill Shorten to hogtie a competitor to industry funds, are incompatible with advice at a reasonable cost.
Add in spooked compliance departments that can stipulate massive extra costs on advisers, which are not borne by the licensee. The justifiably frightened compliance departments are due to ASIC’s eternal lookback program which only looks at records, and you have a toxic mix that allows the cancer of vertical integration to continue.
Easton should concentrate on their own issues regarding vertical integration.
It’s a question of liability – just how liable should an adviser be for their advice? How liable is an accountant if you lodge a tax return (answer: almost nil) how liable is a lawyer for their advice – (answer: basically NIL because to sue a lawyer for their advice you need another lawyer willing to be held personally liable if the case fails.)
How liable are doctors for malpractice? (answer – they are for big things but misdiagnosis and malpractice occurs every day without the client ever knowing).
Should advisers really be liable for the sour grapes when a bullish client goes to custard in a market correction?
I don’t have all the answers but it’s clear that the fundamentals of the financial advice model is broken from the legislation down.
Nathan hits the nail right on the head. Whether we provide scaled or full advice saves maybe an hour in the entire process, as even if (and I say IF) we provide scaled advice we have to discount all the areas we are not advising on and why. This is ok as long as we are allowed to operate as professionals. What ASIC is doing is basically ignoring all the hard work many of us put into FASEA and post Grad education and allowing and even encouraging the very cowboy networks to re-establish themselves that started all this trouble in the first place. I hope the FPA/AFA are reading this article.