Michelle Levy has recommended that product providers such as banks and super funds provide personal advice to Australian consumers. She says this will help more Australians access advice, particularly in a world where financial advisers are far too expensive.
Accessibility and affordability of advice are the ultimate goals of Levy’s review. Nowhere in her final report does she suggest a return to commissions being paid to financial advisers. But back in 2014, Ms Levy thought commissions weren’t such a bad idea at all.
In a blog post for Allens dated 20 August 2014, she writes:
“It is possible that FOFA may have had its day. If ASIC has its way, financial products will need to be suitable and instead of financial advice being in the best interests of the customer, the financial product will need to be. If that is the case, does it matter if the person ‘selling’ it doesn’t act in the best interests of the customer or if they are paid a commission by the product issuer?”
The Quality of Advice Review (QAR) chair goes on to say:
“If I visit a Toyota dealership, I expect to be sold a Toyota — I know the salesperson is not acting in my best interests and I suspect they will get a commission. But provided the Toyota does the job, there is really no reason to complain. If it doesn’t, Toyota is responsible for fixing any defects. If I want to know which is the best car for me, I will ask an independent expert, I won’t visit my Toyota dealer. Why should buying a financial product be different?”
Why indeed. Now, almost nine years later, the third recommendation of Ms Levy’s final report opens up a discussion for commissions to be reinstated:
Ms Levy recommends that the Corporations Act 2001 be amended to provide that personal advice must be provided by a relevant provider where:
a) the provider is an individual; and
b) either:
i) the client pays a fee for the advice; or
ii) the issuer of the product pays a commission for the sale of the product to which the personal advice relates.
The final part of this recommendation needs clarification. To me, it seems that Ms Levy is recommending that the relevant provider, such as a financial adviser, can provide personal advice and be remunerated by either the client or the product provider. There is no specific mention of the product in question being life insurance in this recommendation.
Elsewhere in her final report, Ms Levy states that fees charged by financial advisers “will always be out of reach” for some people and, even when they are not, not everyone will want to pay a financial adviser.
“Financial advisers themselves want to provide comprehensive advice to clients with whom they have an ongoing relationship, as they have studied and trained to do, rather than to provide incidental or piecemeal advice on financial products.”
I disagree with the above comment. Sure, financial advisers want to provide comprehensive advice to clients. But they also want to provide incidental or piecemeal advice on financial products. They just can’t, because they don’t have commissions as a revenue stream to underwrite the cost of providing those types of advice.
Banning commissions is what caused financial advisers to stop providing piecemeal or product advice. Studying and training has nothing to do with it. It’s pure economics, and one of the main reasons why advisers now target wealthier Australians. The majority of Australian consumers would like piecemeal or product advice from a financial adviser, but they can’t get it. The model has been designed this way.
Now it looks as if product providers will step in and begin providing the piecemeal advice that advisers were forced to stop offering when commissions were banned.
Commissions weren’t previously subject to the fee disclosure regime and the adviser was not under obligation to identify the services or levels of service that would be delivered as part of that payment structure.
If commissions were brought back and subject to exactly the same regime, then what is the issue?
Well written. Although going back to the old days of product advice by product providers is a step backwards to conflicts of interest.In my opinion people will be driven into piecemeal advice (for free) and get poor outcomes as they will not get holistic advice. Clients avoiding paying fees to professional advisers will cost clients more in the long run.
Dear James,
A well written article outlining the shortcomings of the QAR.
Whilst the QAR may recommend commissions, the professional body of financial planners must clearly remind the government, and possibly journalists, that commissions on funds management is a regressive step in the ongoing provision of quality advice.
To use your example of a Toyota dealership. No, no one has an issue with the Toyota dealership selling a Toyota. So, Australian Super advisers can recommend Australian Super, and MLC Advisers can recommend MLC products.
Let’s not confuse that situation with those financial institutions paying commissions.
As a profession, we have fought too hard for too long to get to where we are now, let’s not drop the ball now.
What professional bodies to you refer to Chris?
Also, why do advisers need a degree?
Surely a two week course at a fund managers office will suffice!
This is a regressive discussion. The industry has worked too hard in the face of FASEA to move towards being a profession and being considered a profession by the public to consider reintroducing conflicted commissions rem structures again.
I remember the days when we were considered “as trustworthy as a used car salesman” and moving back to commissions is a return to the dark ages.
A better solution is making all advice fees tax-deductible to reduce the impact of the cost of advice and improve the equity in AFCA considerations rather than starting from the viewpoint of the adviser being in the wrong.
So, are you saying Product Providers paying for the delivery of Advise is a regressive step – but Michelle Levy is recommending it?
Very well said – pretty much nails it … yes bring back commissions. The advisers want it , the consumer wants it and threes a crowd so lets stop there
Wow it only took a week from the release of QAR for this to be posted. How quick do we forget history? How quickly do we forget that despite things not being perfect now, the industry is far better than it has ever been! The majority (certainly not all) of the 12,000 advisers who have left should not have been in the industry. We don’t want them back
What a rubbish assumption…
“…particularly in a world where financial advisers are far too expensive.”
Plastic surgeons might be too expensive too…
But people will pay for results because the value added is worth the investment….
So why Michelle Levy’s recommendation for the Product Manufacturer to pay for and provide advice?
Strongly disagree, with there being any good reason to bring back product commissions.
Then it will all just become a game of accumulating FUM again. If super and investment products have to pay comms, then that just leads to higher product fees & less transparency for the consumer….the money has to come from somewhere!
The exception of course, is Life insurance. These comms rates should be increased in my view.
If you wind back the onerous requirements to provide advice documents, and licensee requirements to build a huge file justifying every piece of advice provided, this will allow advisers to provide more advice, at less cost.
Then put some focus on encouraging more people to study Financial Advice to boost the number of advisers.
This would solve the issue over time, in my view. Keep the banks out of it altogether, they are too big and profit-hungry, and increasingly don’t give a sh!t about their customers.