The Institute of Managed Account Professionals (IMAP) is of the opinion that several of the recommendations made by the Quality of Advice Review (QAR) could result in another royal commission in a decade or so.
In its submission to the QAR, IMAP said its review of the consultation paper suggested that the intent of the recommendations is “quantity of advice”, not quality of advice. What IMAP is gravely concerned about is that the proposals outlined by reviewer Michelle Levy could open the doors up to an influx of institutional product flogging.
IMAP chair, Toby Potter, said: “It is IMAP’s opinion that the QAR will reduce the emphasis on the provision of advice by individual advisers in favour of enhancing the capacity for institutions, both private and industry funds, to provide something that represents a new definition of personal advice — ‘good advice’.”
Mr Potter outlined several objections to the proposals, including his distrust of the contentious definition of “good advice”.
“The process of defining it is likely to result in heavy institutional lobbying of ASIC for something substantially less than the current best interest duty,” he said.
Mr Potter also accused Ms Levy of “misunderstanding” how quality services are created.
“She says that the current regime addresses process not outcomes. However, that’s actually one of its strengths,” he said.
Moreover, he argued that while Ms Levy’s proposals leave individual advisers subject to the Code of Ethics, they remove those constraints from organisations that “don’t even have to meet a ‘good advice’ standard”.
Mr Potter also labelled super’s proposed return to advice a “retrograde step”.
“Michelle Levy’s proposal to allow super funds to levy all members, so they can provide ‘free’ advice to a select few, is the very definition of ‘fee for no service’,” he said.
“The advances over the last decade towards professionalism amongst advisers appears to count for little,” Mr Potter continued.
He argued that advisers will be operating in an environment where institutions can provide something that looks like free advice but without being obligated to meet the same standards as personal advisers.
“These recommendations set us up for another royal commission in a decade or so, as we try to unpick why so many retail investors got sold products by institutions, apparently under the guise of advice,” Mr Potter opined.
Would be extremely helpful if Mr Potter also offered up some suggestions on how to make advice more accessible to the millions of Australians trying to navigate our overly complex Superannuation and Insurance system.
Anon, here is a start…
1. Keep the best interest duty for advisers, but relax the rules and regulations of what paperwork we need to keep.
2. New independent body to register and regulate financial advisers and coaches (ie like AMA, etc)
– advisers can recommend particular products, coaches can’t
– most people need coaches, not advisers
– both advisers and coaches need relevant degrees
3. Allow companies that DON’T own products (or aren’t linked to them financially) to provide digital advice
4. All information provided by product providers and super funds to be called information, not advice.
The proposals in the QAR are 100% designed to make it easier for product providers and super funds to direct consumers to their own products…after all that’s all financial advisers do isn’t it?
All product providers need to do is provide ‘good advice’…who is ging to be judging whether it is good advice and at what point? Is it after another collapse where individuals lose all their money? Does Michelle Levy not realise that unlike dishwashers or cars, investments don’t generally “break down”…but they can perform really poorly compared to their peers.
The fact Michelle Levy can’t see the conflict of interest is mind boggling.
Several hundred years of experience for lawyers in defining how they should conduct themselves have lead to rules of fiduciary conduct not a contestable “good advice” standard. we were on the way to that approach before the QAAR upended it.
I’m surprised there isnt a RC into Managed Accounts.
it would find that the outcome is incomparably better than the old hand cranked advice model – “take 12 funds, see me in a year, hope it goes well” .
Perfect summation of the diabolical debacle that is the QAR. That’s what happens when the noses in the trough dictate and control the narrative.
The article overlooks the DDO regime as a key control to put guard rails between the product designer and the consumer. It is in it’s infancy but has the potential to really allow the self-directed investor to have better information in which to make financial decisions. It is an indication that the PDS, once hailed as the greatest disclosure document, is not serving as useful purpose as perhaps was envisaged for it. The article also overlooks the reality that a superfund that permits simple advice to be provided to members will have to risk assess the authority they are giving, the expertise of the provider, and the overall suitability of the advice environment. I agree however that the superfunds should not be able to choose how they recoup costs. If a member wants to ring and get simple super advice, they should have to opt into the service and pay for it. I think having a direct link between the advice and the consumer may upset the proposed model so more thought is needed to enable this QAR recommendation. Without a direct fee for service, the article is correct in that it could be a fee for no service debacle down the track. Ultimately however, these are commercial decisions and with the APRA performance testing shining a bright light on fees, superfunds will have to take care if this proposal were to eventuate.
Simple contribution or pension minimum advice is costly to provide for advisers so, should superfunds be given the ability to provide it to their membership, then Relevant Providers should also be able to. Removing the need for a SoA/RoA may solve for this but I doubt ever vigilant in house compliance teams will allow a reduction in the advice process regardless of how discretionary the output of the advice becomes.
On reflection, the QAR may have served us all better had it focused on simple advice only – drawn distinct guard rails on what is in and out and simplified the manner in which that advice could be provided.
A superfund is in the best position to tell a member about contributions and minimum pensions. If that member wants retirement advice or any thing vaguely complex then they should be referred to a Relevant provider. Likewise Relevant Providers should be able to do the same with an existing client that has an existing interest in a superfund without the attendant compliance associated with it. Agree this QAR has resulted in “quantity of advice” over “quality” being potentially solved but has failed to bifurcate the simple from the complex and hence Advisers are concerned, for all the right reasons, on a turf encroachment.
Well said Mr Potter!! Its good to know that IMAP has our backs on this one!
Thanks
163% agree with Mr Toby Potter’s statements. We have been whipped and flogged by a collective of members from sections of the Financial Services industry, and continue, to face the undermining interference by their lobbying efforts, to government and regulators. This itself raises the question of ethics on the part of those involved.
As a Financial Adviser, I believe we need to maintain our core strength, as professional advisers. Yes, it is difficult at present, with the cost and time of compliance. But what I am seeing, is the output of advice that is targeted and informative to the client, the advice provides the client with a plan that is measurable, and accountable, that will assist to provide appropriate inputs from both the client and their adviser ongoing, no need to wait for the annual review, to ensure that the financial plan remains on course. This style of financial plan will also be able to be transferrable to another financial adviser, if a situation warrants it, producing a much better outcome for the client from a non-aligned adviser.
We see the daylight at the end of this tunnel, our practice along with many that I speak too, agree, that over time, as we continue to implement and fine tune our digital back office away from the major providers of financial planning software, integrated retail platforms and co, to now, where we find ourselves in the position that we can deliver advice, that is now, not only improving our clients position, but in a timely, informative, and efficient manner, without the continued ongoing cost inputs that will continue to be applied to the Aligned-Adviser networks, including Industry funds, from their suppliers of product and licensing services.
It is my personal and professional opinion, that the Individual Advisers, are the only members of this profession that can drive further, the heights of professionalism of the Financial Planning Industry. We should not be cost centres measured as a “share of wallet” to large publicly listed companies where a single set of rules is applied to each and every financial adviser on how you serve one individual client. Best Interest is and is always to the client.
Very true.
I agree that SOA’s are too long, especially considering the amount of time is spent disclosing product comparisons at every possible turn rather than at a single time.. but the best interest duty, what is actually wrong with it???
The best interest duty BID doesn’t equate to advice in a clients best interest. It’s a process of meeting safe harbour through additional product comparisons. Removing BID is a great idea, the syntax and education around this should be clearer. Fasea ensures Professional Advice from relevant providers is still in a clients best interests.
Hello FPA/AFA. Why would you want to support QAR?
They’re being supported because the proposals will make advice more accessible and less expensive to produce, increasing capacity and lowering operating costs. Consumer protections to disuade vertical integration and miss-selling of inhouse products masked as advice should be implemented or changed, and I believe this is outlined in the fpa and afa response to the propoosals