Lifespan Financial Planning chief executive Eugene Ardino told ifa while it was currently possible to deliver “limited scope” advice, such advice still fell under best interests duty obligations and required the same amount of research and administrative time as full personal advice.
“The difficulty with limited scope advice, [where] the client wants advice on one small thing like insurance or super, is that best interest duty and parts of FASEA seem to want you to widen the scope of your investigation and the things you have to consider,” Mr Ardino said.
“There doesn’t seem to be a way to limit file keeping and breadth of investigation, so it makes it more costly and time consuming to be able to deliver a simple piece of advice.”
Current safe harbour provisions around the best interests duty (BID), which Mr Ardino said were essential to proving BID compliance in an ASIC file audit, required comprehensive research from advisers regardless of whether the advice was limited in scope or not.
“Advisers are concerned about getting into trouble because they haven’t considered all the things they need to consider to meet BID,” he said.
“You’ve got to be able to prove by documentary evidence that you’ve met the BID and the only way you are able to do that with certainty is follow safe harbour, which requires an enormous amount of investigation, research and documentary evidence.
“You can’t discard things that seem obvious from experience, you’ve got to document why you’ve discarded it otherwise an auditor may pick you up on that. There is no exception, you have to abide by these rules or the consequences are quite serious.”
Synchron director Don Trapnell agreed that under the current arrangements, risk advisers were also unable to give simple advice around issues such as increasing a client’s cover level without expanding the scope of investigation to full personal advice.
“The way it currently works, if a customer comes to me and says, ‘I’ve increased my mortgage, can I increase my insurance’, I’ll say, ‘I have to do a needs analysis and figure out what else you might need, do this fact find and prepare a statement of advice’,” Mr Trapnell said.
“The client thinks you’re trying to bump the price up when all they want to do is increase their mortgage cover. We’ve had to instruct advisers that they must complete a full fact find for every client, and if the client doesn’t want to complete the fact find, walk away.”
Mr Trapnell said any reconsideration by the regulator of the way scaled advice worked must include a work-around to BID, or it would not reduce the cost of advice meaningfully for consumers.
“There has been a lot of commentary from both the regulator and government about scaled advice being used to try and lower the cost of advice – the trouble is you can do scaled advice but that doesn’t take away the duty every adviser has to act in the best interest of their client,” Mr Trapnell said.
“That duty overrides everything, and it needs to change. BID is not always in the best interest of the client, so I would like to see these anomalies addressed.”
And such rules are what happen as a result of said-rules being created by those with no experience in the fields they regulate; who don’t consult with consumers to see what’s needed and what’s desired; and who litigate rather than engage & discuss.
Well said. When will those in the know address the issue and fix it. it was necessary yesterday but the next best is tomorrow. Maybe each one who can address it to fix and will not should sit in front of a client with these circumstances and experience first hand.
Um. Duh.
BID exemption only exist for Industry Fund “advisers”. The policy makers likely keep hearing from them how limited advice is great. Meanwhile the rest of us are stuck needing to do full research and advice. FASEA even doubles down on this and is even more onerous than the Corps Act and can even override safe harbor.
Bit of a mess if you ask me. Surely a regime where a client acknowledges the risk of limited advice should be sufficient
fact check – there are no exemptions from BID for industry fund ‘advisers’
In the context of a client asking ‘their’ financial adviser for ‘financial advice’ about the question ‘can I increase my insurance’, the answer cannot be, without considering the client facts/circumstances not an auto ‘yes/no’, it is a question that requires a paid professional to engage with the facts and client circumstances to provide advice, albeit on a single topic which in this case is insurance- things change, and it likely goes without saying that a client would expect an analysis to be done to make sure it is right for them, otherwise why would the client bother asking in the first place let alone pay money for a seemingly knee jerk response (possibly reckless).
There is a reason why it is called ‘financial advice’ and it requires engaging with the client, otherwise it may as well be called a financial guess. The client is paying for ‘financial advice’ (which includes the process to arrive at that advice) the product is secondary. The value of the property may have significantly increased, the clients pay may have increased, their dependents may be no longer dependents, the premium may increase significantly and not be feasible for a number of reasons etc etc. and an increase may or may not be needed, but who cares right? The simple fact is that as a profession, advisers have a duty of care that is separate from the BID. As stated in this article a work-around is needed as following the BID creates certainty for the adviser and the client….awkward silence..this is meant to be a bad thing?
As for BID not always being in the client’s best interest, that a tough pill to swallow, it’s purpose is to ensure the processes and motivations of financial advisers are focused on what is best for their clients. Furthermore, first and foremost bid it is about regulating conflicts, not the intrinsic quality of the advice provided.
Reducing costs by working-around aka watering down and/or removing consumer protection and in essence adviser guidance, to offset the drop in insurance commissions that are difficult to pass to the client will (lower the cost or providing advice, theoretically) enable clients to receive more affordable crappy advice and therefore we can sell more insurance etc. etc. NIIICE! HIGH FIVE! GREAT SUCCESS! (BORAT 2020)
What should happen is that the intrafund personal advisers need to obtain Opt Ins & provide informed consent for their ongoing fees & bonuses, and under FASEA Guidelines, should strictly NOT receive bonuses. However post-grandfathering, if the product flogging FSC & the Union Based Super Funds want open slather non-BID “scaled advice”, then Opt-ins on ongoing fees for retail advisers, as disclosed in statement of Advice/FDS, should now revert to “Opt-Out”. This is the ONLY way the industry will ever bridge the advice gap for low income earners.
Yes, in a nutshell it takes 40 steps to deliver just one piece of advice without breaking the law. Significantly these laws only affect the “good guys”, not shonky advisers as they don’t care about the law!
There is an alternative view that Safe Harbour is not actually necessary for BID, and it is legally possible to be BID compliant without researching and documenting things that are trivial and/or common sense.
However the big problem with not using Safe Harbour in every instance is that biased ASIC officials might use it as a persecution opportunity. Without detailed documentary proof of the most minor issues, ASIC can easily interpret the law in a pedantic way to destroy adviser’s livelihoods and lives, for something that has caused no consumer harm whatsoever.
The way forward for affordable, professional, advice is not necessarily via major legislative change. Far more could be achieved by removing biased, vindictive regulators such as ASIC and AFCA and replacing them with a single regulator more focused on good consumer outcomes.
And above and beyond BID, impossible to do scaled advice commercially as an IFA whilst meeting Fasea standards too.
Yes, there are a lot of anomalies in BID and the FASEA code where the consequences are harmful for the client as the adviser simply cannot give the required advice or has to remove themselves from the case. That is what happens when the main purpose of legislation is to make things more difficult for the adviser rather than the main purpose being to look after the client.
Same with ‘general advice’ – here is a travesty that the word ‘advice’ is allowed to be used.
Correct . Eugene should take his message to Canberra.
Synchron and Lifespan coming out against client best interest – there’s a surprise to nobody.
No, that’s what RiceWarner wants (in their latest paper). Synchron & Lifespan are only highlighting the inconsistency in the regulatory approach, as they ought.
F$&@ standard 4
And 1 to 12
Won’t happen, too much common sense here from the these two veterns so the powers that be won’t listen and really don’t care. ASIC, Government, FSC, and the FPA just want to “appear” to be trying to do something as per their usual bullsh*t