“In answer to some commentary, I haven’t recommended the winding back or dismantling of FOFA and indeed I would say it’s one of the foundations upon which the recommendations sit,” Ms Levy began.
“But as hard as I tried, and I tried really hard, I have not been able to persuade CHOICE and consumer representatives that the recommendations are in fact good for consumers,” she noted.
The reviewer clarified that in her opinion, “CHOICE paints a truly terrifying picture of radical and untested changes”.
Quoting directly from CHOICE’s statement, in which the group asserts that Levy’s recommendations “will be a disaster for consumers, a picnic for lawyers, and lead to the next royal commission”, Ms Levy admitted that it was “really hard” for her to read these comments. She described the group’s media release as “high-handed” and expressed her dismay at its content.
“They really dismiss a lot of the arguments and reasoning in the report,” she evaluated.
What groups such as CHOICE failed to understand, she said, is that the QAR wasn’t a review into financial advice by financial advisers, instead “it was a review into the regulatory framework applying to the provision of financial product advice”.
“Advice in the ordinary sense of the word is not a necessary component of financial product advice,” she explained.
“And the regulatory framework doesn’t distinguish between selling and advice, so this means that financial product advice ranges from advertising by financial institutions of their financial products right through to full financial plans prepared by independent financial advisers, and then everything in between,” she said.
This, Ms Levy said, is important when determining who should be able to give financial product advice and what duties should apply when they do.
In addition, the reviewer highlighted that financial institutions, including banks, superannuation funds, and insurers, frequently provide advice aimed at persuading customers to purchase their financial products.
While “this is a well-known fact”, the reviewer observed that it is often overlooked in negative commentary on the subject.
She noted, “vertical integration remains lawful and prevalent, despite its obvious implications”.
Her recommendations, Ms Levy said, would step up consumer protections, by requiring the financial institution to recommend a product to a customer “only if it meets the needs of that customer”.
“The customer should not need to go to a third person to decide whether that product is suitable for them.”
Ms Levy explained that while the current law divides financial product advice into general advice and personal advice and then regulates them differently, the law “permits and provides a real incentive” for financial institutions to use general advice to sell their products.
This, she noted, can lead to “really poor” customer outcomes.
“My recommendations would stop that,” Ms Levy said.
“My first recommendation is to expand the definition that we currently have of personal advice,” she said, noting that anyone that engages in a personal interaction with a customer “will give the customer personal advice”.
“This will expand the categories of conversation which are now treated as general advice into personal advice. This recommendation, married with the good advice duty is, I think, fundamentally important in protecting consumers from poor advice and the miss-selling of financial products,” she added.
“And so I recommended that a person who gives personal advice be required to give good advice.”
Returning to the negative commentary, Ms Levy said: “I struggle to see what I’m undoing”.
Ms Levy also commented on the intentions of the Financial Services Minister, Stephen Jones, to review the review. She revealed that during a meeting in Canberra last week, the Minister raised the matter with her.
“When I spoke to the Minister about this, he said he wants to stress test how it would be operationalised. He was trying to be polite, I think,” she said.
Last week, in a written statement, Ms Levy told ifa: “I hoped that the review did bring expert analysis to the area and so I do not think more analysis is required”.
“But I understand why the Minister would want to speak with people and to think about what the industry would look like if the recommendations were adopted,” Ms Levy said.
“I hope that having done that, he will be persuaded that they have real merit and will make good quality financial advice more affordable and more accessible.”
If Ms. Levy had really wanted to achieve what she says she wanted to achieve in all this then she would have spoken AT LENGTH with investments advisers AND risk specialist advisers prior to making recommendations. As it stands it is clear these recommendations favour industry super funds and banks and that they have come from an individual who has never sat in a client-facing scenario to give advice. It is obvious her cluelessness further risks client detriment and adviser attrition. Big end of town at work for themselves yet again.
QAR?
Someone needs to explain to Michelle the difference between the concept of Quality and that of Quantity…
Otherwise, perhaps she genuinely though this was a Quantity of Advice review.
What Ms Levy fails to understand is that the average Joe Blogs will always settle for the cheapest advice even if its only 75% “good”. An old veteran of the car industry once said to me that a colleague would walk up to people in a car yard and ask if he could help. The person would say, No thanks, just looking. He would reply, Looking for what? We only sell (make of car) here.
And so it is if you call the number on your super statement. The customer service reps will have KPIs to meet. Now if we were sure that they did NOT have KPIs to meet, then perhaps they would be giving good advice. But when they only have one product to offer and it is linked to their remuneration, aren’t we back to the good old days of the 1980s?
Say I work for Company A on their call centre. But secretly I really admire Company B’s product, buy hey, a person needs a job. Don’t I then have an ethical conflict? Doesn’t this then breach the Code of Ethics?
I remember years ago I was working for an investment home building company M-F. On the weekends, I sold homes for a builder. Now I had no trouble convincing people they needed an investment property, but when I would take them to the homes, they would say, What? This butter box for how much? Don’t you have anything else? Well of course I did. The builder built much bigger homes with a rental guarantee for the same money in desirable suburbs. So it wasn’t long before I left that job – my partner said when I complained about my ethical dilemma – If you cant stand the heat get out of the kitchen. This event is what led me into financial services as I could see that people flogged product to suit their own agenda.
I really cannot see where a bank or Super company can possibly pass the Code of Ethics when giving good advice, and I would love a reply from Ms Levy as to how her QAR ensures that there is no conflict of interest at Super Funds or banks. That, Ms Michelle, is what CHOICE are speaking about.
Ms Levy, if you cannot see that ‘good advice’ will open up a huge legal loop hole for Institutions to offer consumer substandard products you should choose a different career path.
So in summary. Everyone agrees that $5,000 is too much for financial advice and excludes too many members of the public from receiving financial advice.
Meanwhile the $5,000 cost is due to lots of compliance box ticking.
But CHOICE want the compliance box ticking left in place, but for the consumer to pay $500.
I also would love to have top of the line, guaranteed products at ridiculous discounts. But I can’t!
Conflicted product advice will arise again with these changes, keeps going around in circles. The only flogging happening is to financial advisers with the regulatory whip.
Does anyone know what the cost was for the QAR? asking for a friend….
‘Levy responds to negative commentary’ – how about what is good for the (golden) goose is good for the gander. So Ms Levy, if you really want to be listened to objectively and treated fairly from the Financial Services Industry and it’s various and numerous stakeholders, then you should have no problem with being transparent and disclosing your payment for the QAR and any conflicts of interest, just like the rest of the Financial Services Industry has to.
Best not use the word industry – reminds me of Industry Funds – not conflicts in the way they operate I’m told – ha ha ha.
Ms Levy, please provide the Full brief / instructions you were given by the LNP / Frydenberg.
As you say, it really wasn’t a Real Advice review.
And it’s very clear it wasn’t to do with improving Quality of Advice.
It would seem the correct title should have been: QoPFR
QUANTITY OF PRODUCT FLOGGED REVIEW, with the very clear instructions from LNP / Frydenberg to find every way possible to allow Banks / Super Funds & Insto’s to Flog as much product as possible with as little regulation as possible, zero Advisers, qualifications or education required and at the same time keep Real Advisers mostly tied up in the Gordian Knot of BS mass over regulation.
Please explain Ms Levy ???
As a degree qualified adviser operating since 1990, if I had to vote on the QAR, I would vote to scrap any changes and leave things as they are. I have seen all sorts of reforms over the years, and the people that have had the power to design and implement financial services laws have never listened or acted for the advice Industry, not once. I have zero faith in anyone that has never sat in front of a client and provided advice. This time is no different, just bin the QAR and stop messing, tweaking, fiddling, changing our Industry.
If the providers and protectors of financial product/financial advice are having trouble understanding what Ms Levy is trying to accomplish with this quality of QAR pity help the consumers of the product and the advice. Too complicated by half.
I do not see why product is a problem assuming the client is given a choice and why it perhaps suits them.
Often a substantial plan will lead to a product. No problem unless of course it is only one product available.
Are you expecting the Superfunds to recommend their members move out of the product? She is giving a green light to personal advice that is not in a clients best interests, so long as its cheap and accessible.
I can see the breakdown of consumer protections being greater than Michelle’s valiant efforts, due to the risk of institutional greed. No banks please.
No Banks and Instos (any product manufacturer), just reading Philip Lowe’s attitude to recent bank profits just proves they are a protected species at the top.
No super funds either.
Especially No Super Funds.. Banks on steriods.
Institutional greed is a given. It is guaranteed and built into their DNA.
Poor Ms Levy. While the adviser bodies seem to be fawning over her report (and I don’t see why) it seems the consumer groups are not happy.
Her explanation is quite clear she sees a difference between “financial advice” on the one hand and “financial product advice” on the other. Pure unadulterated selling by providers’ employees falls smack bang in the middle of financial product advice. And she is at least clear that she thinks these salesmen do not owe any fiduciary type duty to the consumer – rather she has been very clear that their duties are to their employer and she has said she sees nothing wrong with that.
I reckon on both sides of the Tasman the fatal flaw is that no distinction is drawn between advice and selling.
In 2009 CJ Sir Anthony Mason describes this flaw thus “our system of regulation proceeds on the footing that the adviser may be a product seller. Indeed our system enables the product seller to adopt the disguise of a financial adviser and endows that disguise with the aura of legitimacy by calling him a “licensed ” financial adviser.”
I’ll continue to read professional journals and the AFR to better inform myself in contemplating the retirement savings strategies my financial planner sets out. In the meantime and for the foreseeable future, I’ll rely on Choice to guide my decision next time I’m in the market for a new washing machine!
Choice have always had their own agenda, and protecting the customer isn’t necessarily part of it.
A complex area……a Gordian Knot of ridiculous complexity……. but Ms Levy besides wanting to allow Banks / Super Funds / Insto’s to Flog more Product.
Of which you reckon will be done under the guise of Good Advice…..mmmm ?
It would seem you have done a terrible job in clarifying your recommendations.
Basically it seems no one but yourself understands them, including the minister.
Can someone clarify for me, if a super fund collects a percentage based admin fee, then their reps (call centre) do not have to provide “good advice” because the member/consumer is not charged a direct fee?
How does this then relate to Ms Levys comments about miss-selling?
“I think fundamentally important in protecting consumers from poor advice and the miss-selling of financial products,…”
If the above is actually the case then that is a concern.
I don’t think anyone knows……it would seem what Ms Levy thinks or now says as she is coping loads of deserved flack, is completely different to what she has written and presented.
No doubt it’s about Flogging more Product…how any of it really works no one seems to really have a clue but her ??????
They do have to provide good advice – and the Licensee is responsible for it as the call center operator is not a relevant provider. Gosh its not hard people.
Yeah we’ve seen first hand what happens when you let large Licensee’s of Banks and Super Funds responsible for advice – they’re not responsible, even after they lose that Licence.
Yes you are right, but when they inevitably recommend their own product as a non-relevant provider they do not have to meet any statutory best interest duty, which financial advisers are subject to. Is this actually good advice? NO. Gosh, its not that hard to understand!
I am struggling to see what Levy is doing would improve the position of consumers…….. but I can see how it would help lawyers, banks, superannuation funds, insurers.
She is getting rid of the veil of general advice and capturing all advice as personal advice. This is better for consumers and holds product providers to a higher standard. One that must be ‘good’.
She might need some ethics training… to recommend unqualified people to give complex financial advice, charge all members for financial advice only few will use is fee for no service, also charge whatever super funds want and remove all client protections if the advice is not in the clients best interest from uneducated call center staff which will only be used as a retention tool.
Levy wants to keep financial advisers doing ethics test, Min education to honors plus a year of mentorship, Annual reviews still required, commissions which require opt in to be signed and SOA removal that still requires you to document everything on file without much detail how this would work.
Yeah can’t work out why people have a problem with this give me a break, She should lose her law license.
To have so much ambiguity at this stage of the review is simply bewildering.
Not really bewildering, given the track record of previous reforms
An LNP / Frydenberg employed Product Lawyer instructed to make sure the Banks / Super Funds & Insto’s can Flog Loads More Product.
I think the only bewildering thing is she is also trying to make Advisers have some small wins too, so they don’t try to kill it.
“I struggle to see what I have undone….”
Therein lies the problem…
A financial advice profession / industry that has largely been decimated by past lawyer involvement and government involvement…
A financial advice profession / industry that has bent over backwards to adhere to everything thrown at it by the regulators, choice and others because we want to help engaged clients to be financially successful…not to mention our role in assisting with the effective creation of liquidity in the economy so that credit creation and equity can flow.
What should be happening Michelle, is that this sector of the economy should be supported and encouraged to grow. This is how you protect clients and the economy. By finding alternative solutions akin to allowing the banks and superfunds to use unqualified call centre staff to do the work that should be done by qualified professionals is inefficient and dangerous and not in the best interests of the client…but perhaps you already knew this since you’re now calling it “good advice”.
‘I’m struggling to see what I’m undoing’
Try $6b to date in remediation (and still ongoing)…
“instead “it was a review into the regulatory framework applying to the provision of financial product advice”.
“Advice in the ordinary sense of the word is not a necessary component of financial product advice,” she explained.”
And this just proves that a lawyer should never have been involved in the QAR from the start – another failure of Jane Hume.
You would expect a lawyer (& Treasury) who has very little idea of what happens at the coal face on a daily basis of an advice practice to say that. If someone heading up a Review understood the global investment advice sector, they would eliminate the highly inefficient Annual Fee Renewal Consent form (that doesn’t exist in any nation on earth except Australia) and change it to the previous client’s voluntary Opt-Out fee arrangement.