Addressing the FPA’s virtual congress on Thursday, UNSW Professor Pamela Hanrahan, who advised commissioner Kenneth Hayne on the dynamics of the financial services industry, said with the sector having evolved past conflicted remuneration and regtech solutions coming to the fore, many of the current regulations governing advice may no longer be necessary.
“The basic architecture of the current system was devised to solve problems in the relationship between adviser and client in the 1990s,” Ms Hanrahan said.
“If you think about the sorts of problems people need help with now or the digital architecture that can support the way we practice, we are coming to the end of that regime.
“So it’s difficult to see how we can get out of the regrettable level of regulation we have at the moment without a root and branch re-assessment of the architecture of that regulation.”
Ms Hanrahan said a key starting point was freeing up regulatory obligations around simple scaled advice, which carried less risks for consumers.
“Personal advice has this fiduciary character, that means every time advisers make a judgement they are required to do so to advance the client’s interest and not their own. We need to make sure advice has that fiduciary character, but things that don’t have that intensity should be subject to a lighter form of regulation,” she said.
“I think the scope of full regulation can be trimmed back – it’s time to regulate a narrower range of activities more intensely and open up the space for qualified people to be able to provide assistance to clients on a more limited basis than they are able to do at the moment.”
By opening up scaled advice as a lower-cost option, the industry would be able to better serve middle Australia and avoid financial planning becoming the preserve of the rich, Ms Hanrahan said.
“For high-net-worth individuals who are prepared to pay the unit cost of providing full advice, we are at a point where there has been a significant improvement in the quality of service that those people are receiving,” she said.
“The difficulty is around people who don’t want to pay for full advice being able to access answers to questions they are facing because they are going through some life change and they need a bit of guidance. We should be regulating true personal advice where people can afford to pay for it, but it’s that middle piece we are still struggling with.”
I think more regulation is needed not less. Why stop the red tape Hayne train now that it has left the station? Change annual advice agreements to monthly advice documents (known as MAD) and incentive advisers to insure more Aussies by further reducing insurance brokerages? Also make sitting the FASEA exam an annual thing and up the ASIC adviser and TPB levies as they are far too low. Think that should go someway to ensuring far more advisers join and far less leave and will see many more average Australians receiving more affordable advice not just the wealthy top 1%.
Scaled advice is a trojan horse. We all know one area of advice invariably leads to the necessity to cover another even if the client dies not want it. Fail to cover off and your professional judgement is in question. Nothing so galling as another self promoting industry expert telling us what we already know and what she helped create.
Let me get this straight, you were paid to contribute towards the current state of affairs and now you want to ‘be involved’ in a root and branch review of regulation of financial advice?
I wished we lived in a meritocracy when it came to these consultants and talking heads.
I call Industry Super & ASIC working together to green light FAR MORE VERTICALLY INTEGRATED ISA ADVICE WITH ZERO COMPLIANCE. That’s their scaled advice pitch.
At the same time complete ongoing STRANGULATION OF REAL NON INDUSTRY SUPER ADVICE and ADVISERS.
Another ASIC con job on the way.
Mark my words real advisers WE ARE BEING SET UP TO BE COMPLETELY STUFFED!!
YET AGAIN.
The great crime was that advisers and clients were not consulted in the review of the Hayne findings. Clients had been happily receiving this advice and service which this new regulation now makes impossible. No Royal Commission findings are intended to be implemented without a review of the implications by key stakeholders. The tragedy is that all these changes have been rushed through and have now created an almighty mess.
You are 100% correct John. Hayne also ignored consumers. This is exactly what ASIC and FASEA have been doing for years. Instead they prefer to pontificate with academics like Prof Hanrahan and executives who are far removed from the client-adviser relationship. Until these bureaucrats start speaking to practicing advisers and our clients, we will keep getting red tape that misses the mark and consumers will be harmed, because they won’t be able to afford the quality advice they need and want.
“Personal advice has this fiduciary character, that means every time advisers make a judgement they are required to do so to advance the client’s interest and not their own.”
That was written into the corps act in 2012. Yet advisers that work under certain licensee’s fail to train their staff on. If a client goes to a Super fund for advice, what percentage of those clients are being told they need an ongoing relationship with a full service adviser. I know there are plenty of clients I turn away and tell them to contact their super fund, but the opposite is not occurring because Advisers are either un-educated of their fiduciary obligations or the licensee is keeping this quite. .
Listening to Pamela on the webinar I got the distinct impression she thought our regulatory environment was a hangover from the 1990s industry structure, that was poorly suited then and even less so now. I think she, like most of us, was expecting Hayne to recommend a regulatory restructure to get rid of vertical integration and move to individual adviser licensing.
Instead he had a seniors moment, and recommended even more piecemeal bad regulation to sit on top of the wobbly foundations of the existing bad regulation. Thanks to Hayne the RC was a great media stunt, but a completely wasted opportunity for reform that would benefit consumers.
But we’re heading back to the 90’s. “advisers’ from product providers will be giving advice to customers to retain FUM. And it will be easier to deliver than real advice. So we will need the regulation from the 90’s to address the structure that we are heading back to, not away from.
Reading between the lines, seems to me that Professor Hanrahan is arguing that super funds should be allowed to give more advice without all that bothersome regulation.
In other words – personal advisers SHOULD have to deal with the full regulatory tangle; it’s just everybody else that should have an easier ride.
It’s becoming increasingly difficult to avoid the feeling that everybody in charge harbours a fundamental distrust and hostility towards advisers.
i agree with animal farm – 1 rule for all.
Thanks Pamela, look forward to the solution
Why don’t the powers that be speak to practitioners about the best way forward ?
And pigs might fly, ASIC will pay huge buck to BS consultants that have zero real world Advice experience and screw Real Advisers again and promote ever more conflicted Industry Super commission paid, non disclosed Intra Fund Advice.
Like old mate Hayne at RC, had no idea Intra Fund Advice is personal Advice.
Hatched job in way again
Time to have informed consent for ALL ongoing advice fees. That means informed consent for ongoing intrafund advice fees & informed consent when establishing (or altering) the ongoing advice fee (via a Statement of Advice) for retail clients.
Similarly if intrafund advisers don’t want to be burdened by annual member opts in, then there should be no red tape opt ins for retail advisers providing an ongoing service. That is how you cut the red tape. If you eliminate Opt Ins, you actually have time to study / research/ do CPD / provide service etc, and help fill the unmet advice need gap.
The root problem is each dealer group has a different approach to compliance in their interruption of the guidelines.
Easy. Take risk only advice away from the “holistic”advice requirements – Corps Act AND FASEA
That is simply not ever going to happen. And to be fair, there is no such thing as risk only advice. IMO.
The problem is that the FASEA code of ethics does not allow for scaled advice as this goes above and beyond the legislation. You have to look at the long term implications of the advice and how this would impact not just the client. Further ASIC continues to have a look back process and applying today’s requirements on advice given 10 + years ago. These risks further contribute to the higher cost of advice.
Was having this exact conversation with a potential referral source last night. They are looking for someone to help their client s with basic needs that will provide dividends over the longer term, but don’t justify the full advice cost at the moment.
Unfortunately there is no solution, as the FASEA standards directly prohibit you from doing so, because you need to address areas even if the client doesn’t want you to. Hence, there is no basic limited advice allowed under the standard in real terms.
Result… FASEA specficially legislates financial planning to the realm of the wealthy only. Best interest means there needs to be value, this can only be achieved under the current regime once clients have a certain cashflow or networth.