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?
Why doesn’t government just make it work for independent advisers, it’s the best advice
model. Just drop the red tape !! Only 10/% or more want it so why nothing
Are you serious I left the banks to work independently in 2004 due to the sales culture and product flogging effectively, there was no redirect for client or staff interests
And what happens when one of these products blow up
“Advice” was supposed to be non-conflicted. It was not about sales. Only highly educated non-conflicted people could provide advice. And all advice was supposed to be in the client’s best interests, hence the best interest duty was put in place. The best interest duty required so much red tape to evidence that the best interest of the client had in fact been considered that it became unworkable and expensive to provide advice. Every product recommendation had to be accompanied by three other short listed product options with like for like comparisons, etc etc.
It cost small business advisers so much money, sweat and tears and resulted in the suicide of some poor souls. Advisers who operated under bank licensees were all “conflicted”.
Now conflicted “advice” which is basically “product sales” to attract and retain customers is okay. Why was the old system dismantled in that case? And why call the new “product sales” by institutions “advice”? There should be a clear demarcation between product sales and product information and advice.
Institutions can guide customers to the ASIC Money Smart website for “free advice”. If that does not help, they need to see a qualified financial advisor. Make it very easy for proper financial advice businesses with qualified financial advisers to provide simple advice. They can have Tier 2 type “consultants” overseen by qualified advisers providing simple advice.
But advice should not be controlled by the institution that manufactures the product. Else drug companies can start prescribing drugs too. They know a lot about them as they have done all the research and know exactly who these drugs can help.
Or pharmacies can prescribe medicines – who needs doctors and specialists?
And ATO can help people do their tax returns and let them know all the deductions they can claim on. Why go to an accountant?
I agree that there are not enough financial advisers to help all the people who need advice. There were never enough people who thought they needed advice – only a maximum of around 20% realised the value of advice. So what is different now? Just so much red tape that is driving more and more planners out of the business.
Can you imagine advisers from the Industry funds suggesting the member take their funds elsewhere even in Pension phase.
Imagine – age groups of 20s to 50s – most likely to have a mortgage – can you imagine an employee of a Product Manufacturer recommending paying down the mortgage/credit card before contributing more to super? I can’t, and I guess that is why Michelle Levy believe the Advice shouldn’t consider anything other than the product – you can’t be held responsible for giving bad advice if you don’t know the persons situation. Well done Michelle Levey again I guess.
It’s all about distribution…so No, they simply won’t!
The value of planning business has just gone up
Well thanks to Ms Levy its going to be easy for them to provide advice again. In relation to whether they can provide good advice over improving their own profits? Was the Royal Commission a dream? Did it really happen?
Either model could work if:
1) Practitioners were highly trained and skilled and had an industry body that actually focused on high quality methodologies, education standards and upholding these (including their own disciplinary scheme for non-compliance). Note: financial planning is much more about cashflow projections and personal trade-offs than ‘product picking’.
2) Customers understood the value of (1) and could trust it and were willing to pay for it.
3) We prevent ‘fat cats’ sitting above all this getting enormous bonuses for building business models that exploit the fact Australia has the most complex superannuation system in the world but doesn’t teach the public how it works.
At the moment we have none of these.
Number (3) is simply too tempting for the Gordon Gekko types we breed at MBA schools to exploit.
Customers and regulators have learned this the hard way and so don’t trust (1).
“…regulators have learned this the hard way… – seriously? It very much appears the regulators have closed down distribution of retail via advice under point 1 and moved it to Industry Super – who do you reckon is in charge of that? Capitalism to Socialism?
Perhaps your headline should read – why can’t Product Manufacturers provide advice in the best interest of a retail client?
“Can banks and super funds really provide ‘good’ advice?”
Well they didn’t last time, when they had authorised reps. Maybe it will be different this time when they have less of the compliance stuff to work through.
I think all the government will be thinking about is what their union factions tell them the industry funds want, which is to pass the proposals. The opposition wont offer much resistance as the instos will be telling them to do the same.
“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”
The reason advisers don’t want to do incidental or piecemeal advice (under current regs) is because of the current regs where it is too time consuming and costly. If it were easier and faster to provide this type of advice, there would be plenty of advisers doing it, which would be a better outcome than allowing unqualified, conflicted, call centres providing their “advice.”
Well said. Just amazing how Michelle Levy developed that belief? Was it something in the submissions (I didn’t see it), was it something she was told behind closed doors or is it just her belief?
She was hand picked for the job and has made all her money giving advice to product providers how to sell directly to the public… Hume wanted tic tok advice and wanted everyone to get advice from taxi drivers
Only the Harvard trained Mensa’s that are financial planners can provide appropriate advice, surely?
Verticle integration was and remains the major cause of poor advice in the industry. Hayne, Fasea and Levy have done nothing to address this so the white elephant remains.
True, and the real travesty is that [b]HAYNE [/b]was given so much say and power to influence things BUT he was beyond [b]CLUELESS [/b]as to the real problems and fixes for the industry. [b]Hayne was a spectacular insult, embarrassment and waste of money to the industry.[/b] They say a population gets the politicians it deserves – seems that’s true with the judges we get too.
They were quick to point the finger but 6-7 years slow to make any viable recommendations. FASEA did nothing but kill poor advisers.
“They will provide financial advice about their own products because they want to attract customers and retain existing customers.”
So, conflicts no longer matter? Good to know – I guess consumer detriment really wasn’t the problem ASIC claimed it was in all those reports? Amazing how conflicted advice was bad, real bad it seemed but now, it appears it will be called “Good Advice”. I can’t follow the logic but someone once said “follow the money” if you want to know what is really going on – can’t remember who said that?
Vertical integration is not the answer they have been telling us that since FOFA