The corporate regulator has not ruled out the possibility of law reform off the back of its unmet advice needs project, as it seeks broad feedback on what guidance, language and advice types could help bring the cost of advice back to a level consumers are willing to pay.
ASIC’s ‘Consultation Paper 332: Promoting access to affordable advice for consumers’, released on Tuesday, gave more details of how the regulator is planning to conduct its unmet advice needs project, flagging it would conduct more detailed roundtables with industry representatives following submissions to the consultation.
“There are several components to this project, including engaging with industry and other stakeholders about what practical steps ASIC and industry can take to promote the availability of quality affordable personal advice for consumers; and conducting research on the cost of providing advice, what financial decisions consumers make, and what types of information [an] adviser is required to gather and analyse when providing advice to a client to switch from an existing financial product to a new financial product,” the paper stated.
ASIC said following the collation of submissions to the paper and the series of industry roundtables, to be held in early 2021, it would “set out the actions we will take to help industry provide both good quality limited advice and affordable personal advice more broadly”.
The regulator said it would pass recommendations to government from the consultation “if we receive feedback on law reform that would help industry provide quality limited and affordable personal advice”.
ASIC noted that its recent consultations with industry indicated compliance concerns may be the chief reason advisers and licensees are reluctant to give scaled advice, but seemed to refute recent comments from advice groups that such advice was not compatible with the best interests duty.
“The importance of facilitating scaled advice is recognised in the legislation that sets out the best interests duty,” the regulator said.
“The legislative note to the best interests duty safe harbour provision in s961B(2) of the Corporations Act explicitly states that ‘the matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter.’
“‘That subject matter and the client’s relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.’”
ASIC also noted concerns around compliance with the FASEA code of ethics, while pointing out that the authority had clarified its stance around scaled advice in recent guidance.
“From our recent engagement with industry, we understand there are concerns about compliance with legal obligations, including the Financial Planners and Advisers Code of Ethics 2019, set by FASEA,” the paper stated.
“On 5 October 2020, FASEA released for consultation a draft of FG002 Financial Planners and Advisers Code of Ethics 2019 guide. This draft has revised FASEA’s guidance on limited or scaled advice.”
ASIC also suggested it may update the types of guidance it produces around scaled advice to make compliance easier to understand for advisers and licensees. Questions contained in the consultation paper ask for advisers’ feedback on whether podcasts, videos, a dedicated page on the ASIC website or more standalone examples on scaled advice topics would be helpful.
Further, the regulator proposed specifying ‘limited advice’ as the correct terminology to refer to single-issue advice, to provide a clearer distinction between this type of advice and personal advice.
“We consider that ‘limited advice’ is a more readily understandable term than ‘scaled advice’, because all personal advice can be scaled to some degree,” ASIC said.
“Advice that does not cover all areas relevant to the client is regarded as ‘limited advice’. Advice that covers all areas relevant to the client is regarded as ‘comprehensive advice’. Regardless of how the advice is scoped, the same rules apply to the provision of personal advice on a certain topic.”
Strategic, digital advice could lower costs
ASIC also raised the possibility of strategic and digital advice playing a bigger role in the delivery of affordable advice to consumers, asking advisers for feedback around if they currently provide strategic advice that does not make a product recommendation and if further expansion of guidance from the regulator in this area would be helpful.
The paper noted a widening gap between the cost of personal advice and fees consumers were willing to pay, quoting FPA figures that the average cost of an SOA was around $2,600, while Investment Trends 2019 research had indicated consumers wanted to pay around $500 for personal advice.
While the regulator raised the idea of digital advice playing a bigger role in the provision of affordable advice in the future, it conceded that “many consumers prefer to have human interaction when receiving advice”.
“In our research, we asked in group discussion and interviews whether participants would be interested in receiving digital advice,” the paper stated.
“Some participants said they would not be interested. When we asked these participants why they were not interested, they said that they preferred engaging face-to-face with a financial adviser because this allowed them to establish trust and rapport with the adviser.”
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