Among the recommendations in the Quality of Advice Review (QAR) final report, QAR reviewer Michelle Levy said vertical integration is 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’s recommendation is for vertically integrated product and personal advice providers to be bound by a duty to provide “good advice”.
Speaking at the Financial Advice Association Australia (FAAA) Roadshow in Sydney last week, newly appointed lead ombudsman for investments and advice at the Australian Financial Complaints Authority (AFCA), Shail Singh, said that while AFCA stays out of policy decisions, he would expect an increase in disputes if non-relevant providers can provide personal advice under the good advice duty.
“Some people will not see an adviser, and this is a way they can get advice. So, I get that and that’s a positive,” Mr Singh said.
“I think it will probably increase the number of potential disputes, because the definition of personal advice is broader. Then it will be a question of interpreting what good advice means by a non-relevant provider.
“I think there are risks in leaving it to industry to determine whether a non-relevant provider or a relevant provider should provide the advice because … there’s things that look on their surface, quite simple, that can have very severe consequences for consumers.”
Ms Levy previously addressed concerns that a prospective good advice duty would lower the quality of advice, due to misinterpretations of the “good” standard.
“A duty to give good advice is not, and is not intended to be a duty to give ‘OK’ advice or ‘good enough’ advice,” she said.
“I think most people would agree that ‘OK’ and ‘good enough’ do not reach the level of ‘good’.
“Nevertheless, I understand that knowing what is good in a particular case might be difficult and so I do accept there is a need for a definition of good advice.”
Mr Singh added that the potential consequences of non-relevant providers giving personal advice include the possibility of loss of insurance, tax consequences, and implications on super caps.
“There’s all sorts of little tricks in there that I think would be better provided by relevant providers than non-relevant providers,” he said.
“I think that will be a tricky area to navigate. But I think the consequences for AFCA if it’s implemented is there will probably be more disputes because there’s more people giving advice and interpretation of what good advice means for particular circumstances.”
Speaking at AIA Australia’s Adviser Summit in March, Mr Singh said AFCA received a total of 2,211 complaints related to financial advice in 2022, though the vast majority were related to Dixon Advisory.
“If you take Dixon Advisory out, we end up at 483 complaints received, which is down 47 per cent from the previous year,” Mr Singh said.
What is the ” best ” financial advice in a client’s interest ?
What is the ” best ” tax advice ?
What is the ” best ” legal advice ?
What is the ” best ” medical advice ?
When acting in a client’s best interest, it infers the advice received would or should be the best to suit the clients interests………….but how many levels of “best” are there and who should determine this ?
When a client seeks the advice of a Lawyer to challenge financial advice received, it is the Lawyer who has a conflict of interest as they are acting for and being paid by the client to find and prove that an injustice has arisen.
The Lawyer is incentivised to prove the advice provided was in fact, not the ” best ” advice in the client’s interest.
The Lawyer may also seek ” independent ” analysis from another Financial Adviser as the appropriateness of the advice provided, but they are also incentivised to find fault as they want to secure the client’s ongoing business also.
A mess??………..absolutely.
A better way to reduce the cost of professional financial advice and make it accessible to more consumers, is to remove financial advice from AFCA’s jurisdiction. AFCA’s convoluted, biased, and persecutory approach forces advisers to build in extra layers of defence, which forces up the cost and complexity of advice for consumers.
Financial advisers already have more then enough other regulators and regulations. AFCA is unnecessary and counterproductive for consumer protection.
Consumers are fed up with us. They would rather trust their accountant, even if they are not licensed to provide advice.
Yeh can’t wait for the Product Floggers to cause mayhem again.
And of course Advice will be blamed, thus Advisers will be blamed.
How in anyway an unqualified, uneducated call centre jockey flogging only vertically owned products can be called Advice is absurd.
ITS PRODUCT SALES, NOTHING TO DO WITH ADVICE.
Ahh yes, but its ‘good’ product sales. Good for the product flogger.
Glad to see AFCA warning of the potential of increased disputes and complaints.
For me it is simple, only qualified financial advisers should be providing advice in the clients best interests, while product providers should only be selling products without advice (transaction only) like car salesman, and so consumers are clear that if they go and invest in any products without advice from a qualified adviser including super it is buyer be ware as the consumer will be educated that the product provider and their employees has a clear conflict of interest!!
Adviser provides professional independent advice, while product providers and their employees including super funds SELL financial products to a consumer with the disclosure that the sale is conflicted. I do not see how that is confusing to anyone, including a consumer.
That’s all good except the inclusion of
clients “ best “ interest .
Who determines what is the best advice and therefore in the best interest of the client ?
If it is changed to “ client interest duty “ then that obligates the Adviser to consider the clients needs at all times rather than place the Adviser in a highly precarious position of having to satisfy the best advice at the delivery of every single piece of advice.
From an Advisers legal perspective, the best interest duty is equivalent to shooting fish in a barrel if someone wants to challenge the advice provided.
Unfortunately, the car-salespeople don’t want to look like car-salespeople and can’t be bothered getting professional qualifications in order to avoid the ignominy. No surprise they are going to be against higher standards for “advisers”.
Two really obvious things in this article that Michelle Levy is blind to.
1. Dixon Advisory were directing clients to their own investment products. This is the exact problem that allowing product providers to direct clients to their products (under the guise of advice, whether it be done by a person or by a roboadvice platform) is going to result in. If Government adopts all the QAR recomendations, in 10 years there might be another 10 Dixon Advisory firms.
2. Bad advice is not just about the obvious things like losing insurance if super rolled over, paying too much tax, or super caps. Who is going to be policing the investment options people are funnelled into or the quality of the investment products. Often it is not until years down the track that these come to light (ie like with Dixon’s).
What an utter mess the area of advice has become.
Firstly, the utilisation of the word ” best ” in the best interest duty requirement is totally subjective and entirely open to any half smart Lawyer to attack exactly what constitutes ” best “.
Secondly, the use of the word ” good ” in the context of good advice is similarly subjective and exposes any adviser to an interpretation of the parameters of the term ” good ” at any time that may suit a client wanting to legally challenge the advice received.
If the best interest duty definition had been replaced with the ” client interest duty “, this would at least require any advice provider to act in the interest of the client at all times and not be subject to ridiculous adjectives such as ” best” & ” good ” that leaves the subjective nature of these terms an adverse addition to not only the advice provider, but also the client receiving the advice.
Isn’t the solution to this ongoing issue relatively simple, rather than constantly being complicated over and over and over again?
This is not rocket science and I wouldn’t want any of these Lawyers, Legislators or biased ideologists building me a rocket to send me into space I can tell you.
Very sensible comments.