A key recommendation in the final report from the Quality of Advice Review released on Wednesday is to expand the definition of personal advice within the Corporations Act.
“The purpose of the recommendation to expand the definition of personal advice is to improve the quality of financial advice,” Michelle Levy explained in her report.
“Advice is more likely to be quality advice if it responds to the objectives, financial situation, and needs of the consumer, and so this means the obligations attaching to personal advice must require the provider to consider such of them as are relevant to the advice.”
According to Ms Levy, this raises questions surrounding accessibility and affordability. While the law currently requires a person who gives personal advice to consider a client’s objectives, financial situation, and needs, she claimed that too few are willing or able to do so.
“And so, the purpose of the review would be undermined by my recommendation to expand personal advice unless more providers are willing and able to provide personal advice,” Ms Levy suggested.
Specifically, Ms Levy has recommended that the definition of personal advice be broadened so that “all financial product advice will be personal advice if it is given to a client in a personal interaction or personalised communication by a provider of advice who has (or whose related body corporate has) information about the client’s financial situation or one or more of their objectives or needs”.
“Personal advice means financial product advice prepared or adjusted for or directed to a particular client in circumstances where: a) the client tells the provider of the advice their financial situation or one or more of their objectives or needs; or b) the licensee responsible for the advice, or a related entity of the licensee, if the licensee is a body corporate, holds information about the client’s financial situation or one or more of their objectives or needs,” the final report reads.
If this recommendation is enacted, Ms Levy noted that more advice would be personal advice. This, in the current setting and under the current law, would mean this advice would have to be given by an adviser — something Ms Levy thinks is deeply flawed.
“There are only around 16,000 financial advisers in Australia and their numbers are declining.
“If the regulatory framework continues to require all personal advice to be given by a financial adviser (where it is given by an individual), it would exacerbate the existing accessibility and affordability issues which are part of the reasons for this review,” she said.
“Happily, I do not think it is necessary or in the interests of consumers to require all personal advice to be given by a financial adviser.”
According to Ms Levy, the spectrum of financial product advice is “very broad” and there are “simple questions that can be answered simply”.
“It is also clear that even where the advice is not simple, many of us have common needs and so not all advice is unique. This means that technology and digital advice tools can be used to support people who are not financial advisers to provide personal advice, which without that support, could only be provided by financial advisers,” she said.
“Digital advice tools can also be made available directly to consumers. Some already are and improvements in technology mean that they are increasingly able to provide more sophisticated personal advice.”
While acknowledging that advisers have skills and expertise that put them in a position to provide a real benefit to their clients, Ms Levy said that the regulatory regime must allow other advice providers to provide personal advice to consumers to increase accessibility.
“We have been told during the consultation process that, with the right regulatory framework, product issuers would like to provide more personal advice to their customers (or in the case of superannuation funds, their members),” she noted.
“They should be encouraged to provide helpful personal advice to their customers and members. The regulatory framework should therefore assist them to do so.”
Ms Levy added that it was “impractical and unnecessary” to require product issuers to recruit financial advisers to provide all of the aforementioned advice.
As part of her recommendations, Ms Levy suggested that the Corporations Act be amended to say 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.
“In all other cases, personal advice can be provided by a person who is not a relevant provider,” Ms Levy said.
“There are only around 16,000 financial advisers in Australia and their numbers are declining.
This is gold. Financial Advisers have reduced dramatically because of the FASEA requirements brought in and being retained by our fabulous politicians. Now because of the declining numbers, they are allowing call centres to provide advice again. Am I missing something?
“The objective is to improve the quality of Advice”….So the advice being issued now is $%%#@…is that what’s she saying?
Secondly, she is ignoring decades of Academic research on how Advice should be delievered?
I remember a time when there were many people commenting on how essential it is to have qualifications and pass FASEA etc to provide Advice – where are you?
Non relevant providers shouldn’t be called financial advisers so Australians can understand when they are and are NOT dealing with a professional that has experiencial education and ethical standards. Otherwise, great idea and all for the QoAR proposals!
Hmmm… And what if:
(i) the personal advice is via an algorithm (not an individual); and,
(ii) the client pays a fee for the product (but not the advice)?
Unless I’ve missed something it seems like distribution will focus on products that collect fees that do not require the use of an individual that is a ‘relevant provider’, but can tick the box in other legislative areas such as DDO, breach reporting, etc.
This will completely change the FP landscape. Here is my take on winners and losers.
1) Unqualified members of the public looking for a career change (Winner) – No qualifications or experience needed. You can now provide “good advice” working for a product provider and help manage the life savings of retirees. There will be big bonuses for meeting sale targets.
2) Paraplanners (Loser) – SOAs will be gone. Better start looking at a career change.
3) Industry Fund Financial Planner (Loser) – Replaced by much lower salary unqualified staff who will use digital tools and templates to provide “good advice” working in a large team where the team leader is an ex-financial adviser. Start looking at a career change unless you can score the team leader role.
4) Financial Planner’s looking to start a new business from scratch (Loser) – You will be competing against product providers who can provide “free advice” and operate under lower compliance standards at lower cost than you. The general public will not understand the difference between “free advice” and paid advice. Reconsider your new business dreams it will be tougher than ever.
5) Financial Planner’s in established/relationship based/profitable businesses (Neutral) – Your existing clients have experienced the true value of advice and will continue to value your services. You have scale/relationships so will be ok. SOA’s will be gone but replaced with workpapers that largely have the same content as an SOA. Paperwork/admin will be a bit easier but not to the level you were hoping for. You thought you would be a winner but in the end nothing really changed for you.
Seems correct. Industry Super is now primed for success – competition has been eliminated with the product distribution model of retail super now essentially outlawed – industry Super can collect FUM via Industrial Awards and then manage members via good advice – very little risk of large scale FUM being rolled out by Financial Planner to competition – but I could be wrong – it could all have been about becoming a profession and no not the FUM (remind me how much the FUM is at present)?
Think your spot Anonymous! except those mature practices may ultimately get sick of ASIC/APRA harassment.
Would like to sack my paraplanner and save myself a bucket load, but doubt much will change.
– ASIC will issue guidance that our records must contain the same content already required in an SOA
– Code of Ethics requires clients understand and consent to the advice.
– My licensee is paranoid about ASIC
So regardless of whether this gets to parliament and makes it through he senate, I can’t see any actual time saving or cost reduction at all. It sounds good in the press, but in reality it is just mirage to placate financial planners while Levy tries to give her institutional customers a license to use fake financial advice as a sales tool to flog product.
Did we just go full circle over the past 10 years? This industry is and always will be a political football and a complete basket case. There are thousands of better ways to make an honest living than putting up with this rubbish
Spot on
As a former Risk Insurance adviser, pushed out after a 15-year unblemished record because I refused to succumb to the lie that is ASIC with its extremely questionable mandatory exam after two failed attempts; I find this laughable.
Advisers had their backsides handed to them on a plate over the last 5-6 years (probably starting back in 2013 with the LIF fiasco if we’re being real) as a result of the carnage the banks caused during their last reign of product terror. They threw the proverbial ‘Penny Bunger’ under the life insurance table, destoyed much of its prestige, then backed out and left us all with the incredibly misdirected legislated compliance aftermath.
This expanded ‘personal advice’ definition appears to open the door for them to march right back in and start doing it all over again. It makes my blood boil.
Why does this industry continually bring ‘alleged industry experts’ in to straighten the industry out only for them to quickly transform into assassins time after time?
Only time will tell how this pans out but Punxsutawney Phil is sensing deja vu from LIF and BID unfolding here again.
Levy doesn’t seem to understand the difference between “quality” and “quantity”.
By allowing “non relevant providers” such as super fund sales reps and call centre staff to provide personal advice, she is sacrificing quality for quantity. That was never the point of the review, and is not in the best interests of consumers.
Not only sales reps and call centre staff but their ideal “advisers” soon to be backpackers with sales skills, and the the top sales champ from Harvey Norman.
Hmm so under Levy’s proposals Harvey Norman can apply for an AFSL, create an investment product and the sales staff with no qualifications can go around the store giving personal “good advice” to everyone that walks in on the investment product? It can also be all verbal?
Is it just me or something doesn’t seem right.
“They should be encouraged to provide helpful personal advice to their customers and members. The regulatory framework should therefore assist them to do so.”
So remind me what the problem was when adviser recommended in-house products – and it was paid for by the product provider or is it all OK now Michelle because Industry Super has all the FUM and eliminated the Banks and AMP?
Keep the Financial Planners under red tap – and let the product providers sell product – what could possibly go wrong?
Never mind, qualified Financial Planners probably only need 20% of the market – and we will likely control 80% of the FUM yet again? Then I guess we will have ASIC all over Financial Planners dreaming up issues under Sole Purpose, BID, FDS typos, Ongoing Service periods, Opt-in, Informed Consent, Design and Distribution issues or if all fails, something under the Code should work – but I could be wrong.