Separating product from advice will not mean an adviser can’t, or shouldn’t, recommend a product solution. Of course, they will, and in many cases, certainly, they should.
How would it be if we went to the doctor, explained we had a headache, the doctor diagnosed us as having a migraine but then did not prescribe a solution, often a pharmaceutical product, to help manage it?
What separating product from advice should mean that product providers can’t go about pretending to provide advice when what they are actually doing is providing information on their own product. In other words, they should not be allowed to tell people that the information they provide about their migraine product is medical advice.
This is the reason The Advisers Association (TAA) has issued such a clarion call for the removal of the word ‘advice’, from ‘robo-advice’, ‘intra-fund advice’ and ‘general advice’. When a consumer hears the word ‘advice’, they may, not unreasonably, assume that they have received personal financial advice, advice that is relevant to them and their situation. In our opinion, the word ‘advice’ in these contexts is therefore not only incorrect but potentially misleading.
As we have consistently said, most recently in our ALRC Interim Report submission, we believe the time for separating financial advice from the product is long overdue. For far too long, there has been far too much focus in the law on financial products, to the detriment of financial advice. We need to separate the two in order to better align with consumer expectations, reduce the risks of vertical integration and recognise the changing operating environment of professional advisers.
As a side note, there seems to be an outdated idea that AMP financial advisers are still vertically integrated to AMP, a ‘tied sales force’. For the record, AMP and Hillross advisers have a wide Approved Products List (APL) and the same Best Interests Duty obligations as all other authorised representatives on the Financial Advice Register when making any recommendations – the days of being conduits for the sale and distribution of AMP products are long gone.
But back to the point – how do we separate product from advice?
As Paul Harding-Davis from Advice IQ recently observed, “the biggest mistake made by the Financial Services Reform Act was defining financial advice as the recommendation (sale) of a product”. We agree with Paul – so what actually needs to be done to undo that?
We see the process as follows:
- Change definitions within the Corporations Act – The definition ‘financial product advice’ needs to change to ‘financial advice’. This is something the ALRC Interim Report recommended, and we support. It would mean financial services would be better-picked up and the roles of the licensee and authorised representative structure better-captured.
- Personal advice then needs to change to reflect both the definition of financial advice and potentially who and what structures are required to offer personal advice.
- General advice – as discussed above, we strongly believe the word ‘advice’ should be divorced from the term ‘general advice’ and re-termed something like ‘general information’ or ‘general product information’. Financial advisers rarely give general financial advice, as they have Best Interests and Code of Ethics obligations. We therefore 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 (QAR).
- Changing the above will set the scene for the clear distinction between product providers, who are giving information to sell or retain their products, and financial advisers, who are providing strategic advice and using a product solution to meet and service a client’s advice needs.
- We need financial advice to be recognised as a profession by using principles-based law to enable this. The professional bodies should be developing the operating guidelines, and advisers using their professional judgement to give personal advice, like any other profession.
Transforming the financial advice industry to a genuine profession requires the uncoupling of advice and product and a collective will – the willingness for all stakeholders to work together collaboratively. It has been refreshing to see so many members of the financial advice community willing to embark on that journey.
Neil Macdonald, CEO, The Advisers Association
Some great points Neil. Particularly about “roboadvice”. It is not advice at all. It’s online advertising.
Look, everyone in the industry knows how easy this is to fix. We just suck at getting anyone to understand or listen.
I think it can be even easier than the above but it requires more drastic changes to the corps act and RG’s – have two terms:
Financial Product Sales and Financial Advice.
Financial Product Sales covers any set of circumstances where the objective is for the person to buy a specific product and be paid by the product provider.
Financial Advice is a service where the client pays the adviser, and there is no other conflicted payment.
Selling insurance? If you get a commission, your service is Financial Product Sales.
Recommending insurance but not receiving any commission or payment from the insurer – that’s Financial Advice.
Giving Financial Advice? Then there is no SOA required and a professional indemnity – the only risk to the adviser is the cost of poor or improper implementation. Why? Because we need advisers to have high levels of education and adhere to a code of conduct. This is the same way we treat accountants and lawyers. You can write the majority of Advice out in a page or two, and it could be far cheaper and much more accessible.
Financial Product Sales? It’s clearly stated that the client is being sold something, they can make their own decisions, and it can not be called “advice”.
Many financial advisers will choose to do FInancial Product Sales – no problem, good luck to them the world needs good salespeople and in the case of life insurance – you’re better off with an average product than no cover at all.
We shouldn’t be trying to tweak the edges – the system is a complete failure for the consumer, the advisers and the product providers. We are globally uncompetitive, financial fraud is rising at an alarming rate, and we feed a compliance and governance machine at an excessive cost.
Absolutely brilliant – you are 100% correct and while every single point makes perfect sense to those of us who’ve been in the industry for years, sadly ASIC is still full of public servants who are so far out of touch with reality and the profession over which they rule (and even further out of touch with the consumers they are supposed to protect) so it’s unlikely to change until they begin reviewing their own staff and replacing or upskilling/retraining them.
good article to create discussion Neil,
In NZ we have a similar issue in that advice is categorised around a product suite and ignores the work advisers assist clients such as life goals, money and self-management, If this column type labelling is going to continue, there is room for another column that does not revolve around a product solution.
Well said Neil. Professionalism has many aspects and everything you’ve mentioned above is a big part. If the buffoonish and self-absorbed regulators focused on what you outline above instead of forcing the reams of paper to be being created by advisers and irrelevant and inappropriate exams by [b]clowns like FARCE-IA[/b] then we’d have a chance. Sadly, I don’t think we actually do have a chance anymore.
After 36 years watching the self-focused creatures in charge of making new rules (to justify their own existence and pay packets) I have given up hope. Risk advisers are finished right now due to remuneration far too low to run a business and investment advisers and financial planners will dwindle away by at least 90% between now and 2026 – 2028 as their industry is also legislated from existence with onerous and inappropriate compliance. How can they not? Just look at the self interest of the powerful people calling the shots. [i]Their interests are NOT in line with clients or advisers.[/i] [b]RoboAdvice is coming to stay[/b], with it’s very own flavour of compliance catastrophe, acknowledge it or not.
Every adviser self licensed through asic. Its the only way.
Product flogging is still rife in Amp!
Just hurry up and get it done.
Some logical comments.
Ban Dealer Groups would be a start.
Personally, I’m selling my strategic advice not not the performance of Vanguards funds or BT’s platform adminisitration but who has the time to be creating stock portfolios via HIN on IDPS?
I am currently trialling Roar’s “Archer” and its making the strategy conversation a whole lot better than what i’ve used in the past.
If there were different rules on CGT implications of moving clients out of products that were no longer competitive in the market – wouldn’t we all?
The above proposed changes are so blindingly obvious, it’s amazing that they’re even being debated! Let’s hope that, after so many years of misdirected oversight, the industry might actually be able to move forward in a positive manner.
…….AMP and Hillross advisers have a wide Approved Products List. Maybe true but how many in list are AMP aligned products, how are new products approved and is this decision truely independent of AMP interest?
Out of platform products? 2 out of 5. There are also 8 industry and public sector super funds on the list.