Speaking on the ifa podcast, Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals (AIOFP), said that the proposed good advice duty would be a negative for consumers.
“We are warning people about this move by some sections of the market to go to a good advice scenario … everyone’s going to look the same because they’re acting under good advice principles. We don’t think that’s good for consumers,” Mr Johnston said.
“We think all stakeholders should be acting in the best interests of consumers and that’s by having a best interests duty. It can’t be good advice. Good advice is really directed for the institutions to get around their liability by offering their own products, which is obviously a conflict.”
The best way to integrate institutions into the advice process, Mr Johnston said, is by allowing them to have staff that can provide factual information on their products and keeping them separate from full advice.
“If they have any consumers looking for advice for that particular product they can provide that advice, that information, it is better we call it information, to those consumers,” he said.
“So, we think there should be two categories of advisers within the marketplace. One is product information, which is with the major super funds etc, and the other one is advisers who are prepared to operate under a best interest duty, which we think is acting in the best interests of consumers.”
Mr Johnston added that there has been significant government overreach within the advice industry over the last decade or more and there needs to be room for advisers to exercise their professional judgement.
“We think advisors who are licensed should be able to use their professional judgement on when they dispense advice. If it’s just a small amount of advice, you don’t need a 200-page SOA, which is just ridiculous. It should be just a very small one pager and this should be left at the professional judgement of licensed advisers,” he said.
“We need the government to get out of commercial matters when they’ve been in there too long. They’re not very good at it, they should just take a step back and just let our industry self-regulate to some degree.”
On the question of whether the government is likely to retain the best interests duty rather than move to a good advice standard, Mr Johnston was optimistic.
“Well, Michelle Levy was appointed by a Liberal government, who are in bed with the banks, and that’s really the bottom line in this whole thing. And the ALP is in bed with the superannuation funds, the industry funds,” he said.
“Considering that the best interests duty is the jewel in the crown of their FOFA recommendations, which started in 2012, we think the chances are very low that they will drop the best interests duty because it’s worked and it’s in the best interest of consumers, which is what all stakeholders should be operating towards.
“Having good advice is not in the best interests of the consumers. And we think that advisers should operate in that manner, if they want to be totally professional.”
To hear more from Peter Johnston, tune in here.
Bank employees will be given targets to flog relatively expensive and relatively poorly performing bank products. This isn’t even good advice, let alone acting in the clients best interests. I wonder how long it will take to unwind (again).
“…relatively expensive and relatively poorly performing bank products”
Very old argument that Steve – previously used it seemed to ban commissions – return that money to the members and if they need advice then the member would be happy to pay for the advice if it was worth it? And performance – well, enjoy those unlisted assets as I suspect it might be difficult selling them to anyone at their current values – perhaps a need for additional inflows, a few years of sub par returns and/or something to stop members taking their money?
Funny that, isn’t there work being done in that area – new purpose for super for something for retirement products?
Before kicking up a fuss about phase 2. A fuss where the consultation hasn’t even begun or areas for labelling clarified, ie if it’s product sales or product advice maybe not so bad. Please do something to help the implementation of bloody phase 1
Some of us are old enough and have been around long enough to know that what Peter Johnston says is so true.
Good advise is what ASIC expected back in the 20th century. It was left behind when Chapter 7 of the Corps act was legislated in 2000.
So, it’s only taken a bit over 20 years, but if Good Advice becomes the rule, then we have gone full circle.
I suppose that’s the nature of bureacracy.
Other than the conspiracy theory about the banks, which is a common theme with the AIOFP, what is his justification for saying that a Good Advice Duty will not work. Why does he think this will be bad for consumers?
I note he talks about two categories of advisers, one being providers of factual information and the other being real advisers. The provision of factual information is already allowed; you don’t even need an AFSL to do that. Why would we want these people to be called advisers. This makes no sense.
No one does exaggeration better than the AIOFP – a 200 page SoA. Is that the world record?
Because what is Good Advice? No one can give a definitive answer to that question
Incoherent, can you define what good advice is?
Is a sales person recommends a consumer invest in one of their employers products (even though there are better products available) good advice?
If a sales person working for a super fund recommend a consumer put more money into super to save tax while ignoring the fact they are only 40 and wanting to upgrade their home, is this still good advice?
100% agree with Mr Johnston. This is the best article I’ve read on the matter.
How is ‘best interest’ duty met by having to charge $1000 to meet all the compliance obligations to advise someone they put $1000 into existing super fund to get cocontribution of $500. A one page document is all it needs carve out that existing product meets their needs. Funny enough, that is what they are looking at to allow super funds to provide advice.
Andrew, what if it is not in this persons best interest because they are also saving to upgrade their home? It isn’t about the straight forward cases, it is about knowing which ones are the straight forward cases.
As an example, I had a client come to me wanting to invest outside super because they didn’t want their money in one investment. After talking it through with her (she was 58) we both agreed putting more money into super was the bext for her as she would save $15k in tax over 3 years. If she went to a product provider she would have been sold an investment outside super, even though she would be worse off.