Confused consumers and can’t-lose culture threaten

Australians face homogenised financial advice and institutional blandness if ambiguous legislation allows complaint-resolution schemes to continually harass advisers in the name of consumer protection, according to the Association of Independently Owned Financial Planners (AIOFP).

The silver lining for the independent adviser sector, as regards the best interests legislation, is that the ramifications from these provisions will be spread across the advice industry, and we can now rely upon the institutions to help lobby the Australian Securities and Investments Commission (ASIC) and the government on behalf of all stakeholders.

Due to the extensive and ambiguous nature of the legislation, the greatest concern for all advisers in the short-to-medium term will be how the two complaint-resolution schemes will interpret these provisions in the coming months and years.

Both the Financial Ombudsman Service (FOS) and Credit Ombudsman Service Limited (COSL) enjoy extraordinary powers, which can have significant impacts on advisers who find themselves facing these ‘tribunals’.

Equally worrying is that consumers adopt an almost ‘free, can’t-lose’ mentality in which the voracity of their claims rarely matches the circumstances of the advice given.

Unfortunately, until there is a change of government we will just have to live with this legislation.

Culture of confusion and blandness

The Minister for Financial Services and Superannuation, Bill Shorten, has demonstrated his dogged approach to the Future of Financial Advice (FoFA) objectives, regardless of the circumstances, leaving the industry with no option but to now lobby for a change to the operational culture of FOS and COSL in order to survive the vagaries of the legislation.

It is not a sustainable situation for the independent-advice sector (or indeed for any part of the financial services sector) for consumers to feel as though they are entitled to a ‘capital-guarantee’ system, regardless of the asset class they have chosen merely by going to a complaints-resolution scheme and stating they were ‘confused’.

This culture has to end, otherwise it will eventually destroy the industry. Professional indemnity premiums will escalate, the best advisers will leave the industry and advice will become homogenised with highly conservative options selected to mitigate risk.

This approach – if allowed to become the norm – will not be in the interests of consumers.

‘Institutional blandness’ will not serve investors interests in the long term, no matter how much the Mandarins in the corridors of power might like to think so.

Count on the conference

With these issues and problems in mind, the AIOFP has decided to commission an experienced lawyer to compare and review the culture and operating structure of both FOS and COSL, with a view to providing members of AIOFP with recommendations that can then be put to the government of the day on how to make the current complaint-resolution schemes fairer for all stakeholders.

This report will be presented to members in Adelaide on October 24–26 at the AIOFP National Conference, which the shadow-minister for finance, Senator Mathias Cormann, has been invited to attend in order to discuss the results of the review and the way forward on this very difficult issue.

Peter Johnston is executive director of the Association of Independently Owned Financial Planners.