In an interim report on a review of the Legislative Framework for Corporations and Financial Services Regulation by the Australian Law Reform Commission (ALRC), the independent government agency recommended the definitions be simplified, which TAA applauded.
“We believe the time for separating financial advice from product is long overdue,” TAA CEO Neil Macdonald said.
“There has been far too much focus in the law on financial product, to the detriment of financial advice, for far too long.”
Having called for the separation of the terms in its submission on the ALRC report, TAA has also previously pushed for the separation of advice and product “to better align with consumer expectations, reduce the risks of vertical alignment and recognise the changing operating environment of professional advisers”.
“We have also consistently argued to replace the terms ‘general advice’, ‘intrafund advice’ and ‘robo-advice’ with other terms, which make it clear to consumers that they are only receiving information, not personal advice,” Mr Macdonald said.
“Therefore we did not support the ALRC recommendation to substitute the term ‘financial product advice’ with the terms ‘general advice’ and/or ‘personal advice’ until after Treasury has completed its Quality of Advice Review.
“Very few advisers provide ‘general advice’ due to Code of Ethics obligations, etc. and in many cases, consumers were provided with this ‘advice’ by product providers.
“In our opinion, pairing the word ‘advice’ with this kind of financial product information is not only incorrect but also potentially misleading,” he concluded.
There are times when strategic advice and product advice are interconnected.
Case in point: A client aged 67 who needs advice on how to prolong his retirement capital.
His level of assets are above the Centrelink assets test minimum threshold which means he will receive less than the maximum age pension.
By recommending that he invest some of his super in an annuity you’re able to show how he’s able to receive the maximum age pension and prolong his retirement capital.
In this case the strategy depended on the product recommendation.
The real issue is annual renewals under Hayne2. If we abolished the failed Hayne 2 legislation, this whole discussion would be irrelevant. Given adviser fees are no longer automatically built into the product, just abolish annual renewal informed consent arrangements, as the client can cancel them whenever they want now anyhow. Until we do, over 1 million Australian will never get access to financial service support. It’s as simple as that.
And then there are those clients who have experienced “advice” overseas in much more developed financial markets and don’t want lengthy SoAs to receive their financial advice or resulting financial “products” and instead wish to receive said advice in a similar fashion to how other advisers and private bankers provide it – verbally in person or over the phone or else via emails. Short, sharp, concise and drawing on the knowledge and experience of the adviser and/or banker along with the prescribed solutions and/or products. Lawyers can do it here. Doctors can do it here. Why can’t Australia learn from consumers instead of consumers being forced to put up with the overburden of red tape and things they don’t wish to pay for, nor benefit from in any way? SoAs could be an option rather than a requirement. Consumers could actually ask for, pay for and receive advice in the way they wish. A novel idea no?
Shelf-space fees (or whatever the IOOF’s/AMP’s call them) should be banned.
Planners operating their own SMA’s and collecting a margin from these SMA’s should be banned
The biggest mistake made by the Financial Services Reform Act was defining Financial Advice as the recommendation (sale) of a product. Add to that the Licensee structure and where we ended up with FOFA and Hayne was both predictable and inevitable. Neil is correct in the conclusion, as is the ALRC.
Can someone explain how this works? Plenty of consumers want advice on financial products, particularly insurance. Will separating product and advice actually lead to less cumbersome compliance?
Consumers are consumers. They will shop. Whereas a true advice client follows product recommendations within the advice relationship, parallel to the strategy, and the adviser is the trusted professional who recommends these products, using their professional judgement. That is how simple this should be. No amount of product disclosures or documents with warnings will help a client make a better or more informed decision, as they rely 100% on their adviser’s judgement around this issue. All product bias and personal conflict is a non-issue today, as commissions are dead and buried. Advisers should now be left to their devices and work hard for the fees their client is paying them. Enough with this misdirected political nonsense which, sadly, still plagues our profession, like a fly you just can’t get rid of. Will ALRC and QAR?
Yes, see below
I do not understand how this would work practically. The client is OF COURSE going to ask “what product should I use” – what then ? This solves nothing in my opinion. It is NOT what is required to fix a clearly broken industry.
Not a good explanation from TAA above as they don’t understand the issue or what is currently under discussion.
Yes, clients will want a product – but just pause there a second.
At present, both Advisers and Product Issuers are covered by the same financial product law.
The term “general advice” may be used by an Adviser and a Product Issuer. In a PDS from a Product Issuer, the term “general advice” is used but this is merely product sales info and clearly not any type of advice. ever.
So, if there’s a change in the law and ONLY Advisers can use the term “advice” (and Product Issuers cannot and they must use something else like ‘financial product information’) then the laws start to make a lot more sense.
From there, having untangled that issue. what an Adviser must do in the giving of advice could be simplified.
TAA- A body that represents the sales force of AMP and Hillross. Just why is this association that represent these Sales people calling for this? I’m confused as to what is the advantage of this move for these employed and self employed sales people that are ultimately used to sell and distribute more AMP products? What’s the Advantage to Consumers and why are these distributors calling for this? What impact will this have on real Financial Planners?
Salesforce..?? This is not correct at all sorry. You will find that contemporary practices/advisers are in fact not sales people / distributors for AMP products, which surely may have been the case – largely speaking – past -tense, however the present adviser force aligned to the AMP licenses are like any other practice out there, operating under BID and far from a distribution channel for AMP’s products.
If you own or have an interest in a financial product, you have an irreconcilable conflict of interest and should should not be giving advice.
After receiving advice, the client will then ask, “which products should I use?” What happens then? Another SoA? Seriously.
Unlikely – distinguishing the two matters allows for a more flexible construction of advice documents.
Advice should be strategic, and product subject to professional standards / opinion.
Correct!
But not everyone wants to pay directly for that but are quite happy to have the product providers subsidize..
Not of they knew what that really meant