While there have been positive responses to lead reviewer Michelle Levy’s final report among industry bodies, the AOIFP and CHOICE have taken a different view.
AIOFP executive director Peter Johnston has been critical of QAR since its launch, most recently reiterating that the body is “unashamedly and unapologetically” representing the “best interests” of advisers in opposing the review.
Now that Treasury has released the final report, Mr Johnston has once again taken aim at QAR for allowing banks and institutions to re-enter the advice space.
“As we have pointed out on my occasions, Ms Levy has cleverly and strategically offered something to all stakeholders but it has always been contingent on giving the banks and institutions a ‘free kick’ back into mainstream advice without adequate protection for consumers in place,” he said.
“Thankfully, Ms Levy’s views are just that, her views. Let’s don’t forget Ms Levy was appointed by the Liberal Party who are very close to the institutions. We expect the minister will ‘cherry pick’ some of the ideas and bin the rest. A waste of nine months where this time could have been used more productively in our view.”
Mr Johnston also restated the AIOFP’s view that “the institutions should not be allowed to masquerade or disguise what consumers deem to be ‘advice’”.
“The recommendations are contrary to the recent High Court judgement in the Westpac case where all judges unanimously ruled Westpac’s actions were compromising consumer protection,” he said.
“We think the best outcome is to give the institutions legislative carve out allowing staff to give product information to consumers, nothing more.”
Meanwhile, consumer advocacy group CHOICE declared the QAR recommendations a “recipe for another royal commission”.
CHOICE chief executive Alan Kirkland slammed the report, also calling out the banks and super funds as the “greatest beneficiaries”.
“This report is a recipe for another royal commission. The radical changes that it recommends will expose consumers to unacceptable risk when obtaining financial advice from a bank or super fund,” Mr Kirkland said.
“The biggest scandals in financial advice have involved large banks and super funds, yet they will be the greatest beneficiaries of the recommendations in this report. They will be able to undercut independent professional advisers by pushing out cheap and shoddy advice on a mass scale, provided by unqualified staff.”
Mr Kirkland also took aim at the “good advice” component of the report, citing concerns over clarity of what exactly constitutes “good advice”.
“The proposed changes to the tests for the quality of advice — with a new best interests duty for independent advice and a ‘good advice’ test for advice provided by banks and super funds — will add even more complexity to the system. This will be a lawyer’s picnic. It will take years for the courts to clarify new legal definitions, and lots of people will lose money in the meantime,” he said.
“To make such radical and untested changes at a time when global financial markets are unstable will be a disaster.
“We agree that there’s still plenty the government can do to improve regulation of advice, starting with reforms to the meaningless reams of information that consumers currently receive from advisers. We encourage the government to focus on practical reforms that can make the system more effective, rather than the radical recommendations that would undermine consumer protection.”
The Westpac case highlighted that the licensee failed to act efficiently, honestly and fairly, which are core requirements for any licensee. The big difference is that penalties for breaches increased significantly in 2019, and the willingness to enforce existing laws and regulations has increased.
I would love to know peoples opinions on the necessity of AFSLs. What I mean is the idea Dante had from FPA recently where he considered eliminating AFSL’s and having us all operate and be regulated like accountants and lawyers .. you would be required to have your PI cover etc but could you imagine the savings .. think of apart from paying your fees to you every week / FN and an annual audit what real function do these bodies perform in your business ? I am sure there will be different opinions here … just curious to peoples thoughts overall – would you advocate going ahead with or without these bodies ?? thanks for any feedback
Have any of you lot read and understood the Design and Distribution Obligation (DDO) rules?
They represent a fundamental shift in the focus of the regulation of financial services from the advice to the financial products. This is reflected in the new object of Chapter 7 of the Corporations Act which requires ‘the provision of suitable financial products to consumers’.
Together with the obligations on AFS licensees, the DDO rules provide an important underpinning to the recommendations in the QAR Report. The early enforcement action ASIC has taken in relation to the design and distribution obligations highlights what a critically important role they will play in protecting the interests of consumers.
Feels like another step to becoming a centrally controlled economy IMO.
Makes a lot of sense and I am supportive of the AIOFP.
I am still disgusted with the lack of support from the FPA and AFA from a few years ago to whom we paid fees to, that in the absence of a decent regulator, legislation was passed without due consideration of the effects on consumers (and advisers) alike. The self interest and weakness is quite visible when you take an ethical broader view.
Over to you Mr Jones
This s like the never ending story, it is a simple solution. Choice and Peter are on the right track. Unfortunately people without actual experience in the industry ( and leaving out Banks etc ) need to advise Govt on proper workable procedures not just using these exercises as jobs for the boys and girls. Now that would be ethical !!!
Peter, Alan and Albert (Einstein) have the same opinion. The definition of insanity is to repeat the process and expect a different outcome.
This is what will happen. With the Industry Funds driving the ship through the Labor Party this is inevitable. “The biggest scandals in financial advice have involved large banks and super funds, yet they will be the greatest beneficiaries of the recommendations in this report. They will be able to undercut independent professional advisers by pushing out cheap and shoddy advice on a mass scale, provided by unqualified staff.” Financial Planner numbers will continue to drop. Sub 10,000 in 5 years or even lower.
The idea of allowing unqualified sales people, working for insurance companies, fund managers and super funds, to dish out ‘free’ financial advice without the consumer protections that apply to financial planners, is the dumbest thing I have ever seen proposed by any report on our industry during my 2 decades as a financial planner. The FPA are a disgrace for supporting it.
I think the point Levy is making here is that there are simply not enough financial advisers to cater for all forms of personal advice. This should be encouraged by advisers not feared.. its more likely to raise the status of fully qualified financial adviser much like when a GP sees someone and then refers on to a specialist etc – that initial less complex advice may be all thats required or it may lead to even more demand for more specialized services … the ridiculous process we currently have is not feasible so if we want to maintain some protected monopoly on that we are only hurting ourselves and mostly the consumer – because we cannot provide that less complex advice … its not economically viable. These changes are needed imo.
You think you’re a “specialist” because only a certain type of person can afford your fees? I would say it just means you charge too much because of poorly written legislation. You think an uneducated guy employed by AwareSuper with a sales target on his/her back is going to refer on a complex client to you?..They don’t do this now so what’s going to change. This is not about us, it’s about Australians and enabling them to get affordable advice. Not for some Super fund to either a) flog more product of b) use advice as a means to flog more product.
This is the lie Michelle Levy built her argument on and it doesn’t stack up to the most basic mathematical scrutiny. 16,000 advisers x 3 appointments per day x 4 days per week x 3 weeks per month x 12 months per year = approx. 7 million appointments per year. There are around 14 million working Australians. Not all of them want or need advice every year. The above numbers are very conservative and achievable if red-tape and compliance is sensibly rolled back, and in fact, I would argue that 16,000 advisers would be an oversupply. Gosh, if we were allowed to operate like other professionals, such as doctors, accountants and lawyers, then 16,000 advisers would be a massive over-supply.
Well said – that you for pointing out the obvious.
Seriously?
Advisers have been thrown a bone with the proposals… main focus is to promote conflicted product sales for banks and industry funds. Hard to see PI insurers actually letting advisers not give a lengthy SOA, or product providers getting agreement on a standardised fee consent form.
These are very interesting points of view by Choice and PJ. I can see both sides here. I do believe the lessons of the past would play a continual role in Banks and Superfunds going back into this space however. A case of the benefits far outweighing the isolated cases of negatives .. no system is perfect – I think good advice is a great concept however – we need to lower the bar in line with other professions and I think Levy sees that .. its all about optimal regulation not best ever … and SOA’s must go period – no negotiation on that – it cannot be compulsory or the industry will simply fail. Yes that may detach some industries currently riding on our back so be it
I don’t believe the QAR will NOT be a good result for Advisers or Australians. I worked as an Adviser for one of the largest Super funds in Australia and their sales culture is like the Banks but on steroids. Giving them exemptions, free advice by hiding fees among the masses, and the ability to replace their advisers with uneducated individuals is a Royal Commission version 2. The only winners in the short term will be Super funds, not their advisers, not Australians. The crumbs offered to advisers are unlikely to get legs as it’s an admission of prior Government errors.
We need to be looking at all sectors, not just making it easier for Super funds at the expense of highly educated, experienced advisers that are typically not linked to any product providers, and if they’re biased it’s usually based on performance and service standards.
well done Mr Johnston on calling a spade a spade.
The merged FPA/AFA entity needs to appoint him as CEO as a matter of priority.