Speaking on a panel at the FSC Leaders Summit last week, AFA chief executive Philip Kewin said the inability of consumers to obtain advice on their terms is a major barrier to opening up advice to the Australian public.
“I received a complaint where a consumer needed financial and legal advice in order to get a loan from their bank and this person went to four financial advisers – all of whom said they could not just give advice – they would need to get an insight into the client’s circumstances in order to give full, holistic advice which they would have to pay for,” Mr Kewin said.
“This person was outraged because they couldn’t get advice cost effectively – and I know that might seem like a strange circumstance but it does come up a lot.”
Mr Kewin said that this is a consequence of increased regulatory costs that advisers are having to pay for, which ultimately get passed on to Australian consumers.
“Everything that is happening is increasing the cost to serve and it is potentially a real challenge and with things like ASIC funding and the compensation scheme of last resort – only the consumers who have lots of money will be able to get advice,” Mr Kewin said.
“We need to review how things like ASIC funding and the compensation scheme translate to advisers – I think you’ll find that there’ll be a lot of good advisers who [are] funding poor activities and we’ve stated that in our submissions around ASIC funding – we don’t think that there should be a lot of time and money spent on the poor advisers and then the good advisers have to pay for that – because it’s actually not those advisers paying for it, it’s a cost that gets passed onto consumers in the end that raises the threshold for general advice.”
Advisers not being able to give advice in smaller chunks with a price to match is certainly an issue. It’s a result of excessive regulation driving up costs and complexity. However the example quoted is a completely different issue.
This is an example of a consumer wanting to take a high risk decision, and the lender wanting to transfer their potential liability for irresponsible lending to someone else. Happens all the time. If the client has already made their decision and applied for finance then no adviser should go anywhere near it. It is an absolute no win situation.
Sounds like someone looking for a reverse mortgage and the lender requires an adviser to sign off on the appropriateness for the client. The clients generally want to only pay for someone to give a cursory approval, so if that’s what it’s about it’s good to see advisers making good decisions. If that’s what it’s about, not a very good example.
Agreed, suitability of a loan needs a look at their whole situation. This specific example isn’t the issue though is it. I can honestly say that 99% of the advisers I’ve met over the last 15 years in the game have always looked out for their clients best interests. Sadly, due to the amount of work involved to provide often relatively basic advice, it’s always passed on to the consumer or in some cases offset by insurance commission (which may or may not complete). I believe bringing in higher education standards and a code of conduct will help build the perception of a profession (I say perception, because we already are – just that’s it’s not always recognised by media or politicians) and I hope that once the dust settles, we can start the relax the paperwork, statement of advice complexity and compliance measures to allow us to become more efficient and then allow us to meet the needs of the people who often need it most, but can’t always afford it now…
Agree Mat. Look at all the accountants whingeing about the time it takes to prepare an SOA, to tailor their templates to the clients circumstances, the costs involved , the lack of return on licensing. Hopefully the two things combined – higher education hurdles to be an adviser and complaints from accountants in relation to SMSF advice – will lead to a reduced compliance burden for everyone.
The real problem is those who sit on the FSC, have never provided advice to the constituents themselves.
I have a number of people who I would like to nominate for the FSC. They all currently advise which means, in my view they would do an outstanding job!
Yes, and have a look at the CV of the FSC CEO! Unbelievable that this person, a journalist with no super/banking/insurance industry experience or qualifications whatsoever was given (given being the operative word) the job!
The regulatory framework that applies to the provision of advice is overly rigid – the requirement to give a FSG and a SOA was largely aimed at disclosing conflicts of interests – rather than dealing with underlying structural issues that led to poor client outcomes – the approach taken was to require these conflicts to be disclosed. The outcome of this process is that clients are required to pay for the drafting of documents that they don’t want or need – the irony is that I can go to a doctor and receive solely verbal advice about literally life and death issues but if I want to obtain financial advice about a minor matter I have to pay for a FSG and a SOA.
very well said. But the situation described by Mr Kewin is going to be the norm going forward (look to the UK for example). What did they think was going to happen. push back from advisers. no thanks, I decline to provide advice is going to be what advisers will be regularly saying. the current law is unworkable
The real issue here is whether the customer wanted advice on whether the loan was appropriate or whether the wanted a box to be ticked to satisfy the lender. If it is the latter any adviser would be mad to get involved as you are taking on a potential liability for little reward. If it is the former, is the client prepared to pay for a thorough analysis of this decision ? In many cases they don’t, which once again means that advisers would me mad to get involved. The regulators imply that advice should be cheap while at the same time expecting detailed analysis to support advice and for the adviser to wear the liability. The regulators have no idea of the commercial realities as they have never given advice,never run a business and are fixated on price as the key.
The doctor scribbles on one piece of paper, the chemist deciphers it, and the problem is solved. I used to provide a 5 page document to my clients back in the 80s, and by and large I think most actually read it. Most of what we have now, serves no useful purpose to the consumer.
No surprises here, next! This is precisely what we advisers told the idiot politicians and regulators prior to FOFA (and earlier) would happen and surprise surprise . . . ordinary Aussies cannot now afford financial advice. These self-serving hogs at the trough have just about completed doing it to life insurance advice too. They should all be ashamed of themselves for regulating the ‘Client best Interest’ rule and then trampling on it themselves by creating enough red tape (to justify their tax-payer funded jobs) to ensure those that really need advice cannot afford it.
Yes Australia is catastrophically under insured, but no surprises in the outcome.
With Best Interest Duty it’s a no win situation. Why take the risk so you’d have to charge full freight for the SoA and a margin for risk. Congratulations Phil on raising this issue. Just do what I say and tell them Bill Shorten drove up the cost of advice to get more money into Union Industry Super funds. Tell them to get their industry super fund to sign the form. This could also be for the 90 year old seeking a reverse mortgage and not just LRBA. Compliance & Red tape is beyond a joke. My ex dealer group required clients sign 4 separate documents in order to pay me a fee. The cost of seeking advice is already outside the ordinary Australians ability to pay. Back to my red-tape and compliance checklists.
so funny, but agreed wholeheartedly. all day long, I spend so much time doing checklists to ensure I do not do the wrong thing, pretty soon the only risk from any advice an adviser will give will be a paper cut – to themselves 🙄
Sounds like a poor me syndrome. Sooking like a kid because they could not get what they want for free even though the property spruiker(assumed) has promised them to double their money in 6 to 8 years.
This one is not just about cost, it is about liability. The person who needed the document signed off would be happy to sue the adviser if the investment went pear shaped, but doesn’t want to pay for the time and expertise required to ensure the appropriateness of the investment in the first place. This is a common occurrence and we get these requests all the time. Often from someone who walks in off the street, and wants the document signed off then and there and doesn’t understand the process.
If this is regarding LRBAs then full advice is warranted, I agree with Reality. No adviser should just sign-off on an LRBA strategy and it’s suitability without knowing the full picture.
What is really happening here is the banks often want an adviser to effectively “indemnify” their lending practices in terms of an LRBA. On more than one occasion I have had banks seek this indemnity sign-off from me, as their client’s principal adviser. I won’t sign this type of indemnity form and no adviser should have to – it is the bank’s call to lend the money – not mine.
It is even more absurd that the client then goes to the same bank for an adviser to give “advice” and to sign-off and charge them a few thousand dollars extra for the privilege. It is just the banks playing games.
of course it is. they know it we know it, everyone knows it. it’s just that we the advisers are powerless to effect any meaningful change as…… they got us by da balls.
…and others providing finance who incorrectly and in ignorance of the requirements who claim that the adviser need only sign the advice certificate as “they” don’t need to see the Advice and neither do clients need to pay for that advice. Just the certificate…
That is the system working as it has been designed to work by the powers to be. Scaled advice is almost impossible to be provided whilst meeting all of your compliance obligations as established by the government and the major of licensees. If the adviser gave the advice and the investment, which they had no input into turned to s***, then the client and the bank would have recourse on the adviser. Personally I would (and have) refused to give advice in the same circumstances.
I’m assuming this person was trying to obtain a LRBA to purchase property within a SMSF?
Irrelevant of cost, If someone wants me to ‘confirm suitability’ of the arrangement, I need the full details of their circumstances. Too many property spruikers pushing such arrangements on people it is simply not suitable for.