FSC chief executive Sally Loane

The Financial Services Council continued its push for a new advice model with the release of a green paper detailing an expanded blueprint for the industry that includes the abandonment of Statements of Advice (SoAs) in favour of Letters of Advice (LoAs) and the abolition of safe harbour rules altogether.

The greenpaper represents the third attempt by the FSC to gain traction for its ‘simple vs complex’ advice proposal after the release of its original report with actuary Rice Warner in August 2020, followed by a review from pollsters that validated many of its findings.

While many of the original report’s proposals remain, the FSC makes several significant variations to its original blueprint.

Foremost among these is a call for the seven Safe Harbour Steps – which ensure Best Interests Duty has been met – to be abandoned. The steps have led to “entrenched and rigid” record-keeping, the council states, which “confuses consumers and undermines the overall trust they have in the advice process”.

When Best Interests Duty was introduced back in 2013, the council continues, conflicted remuneration and “product flogging” was rife throughout the industry.

“Since that time, a more rigorous conduct regime has been introduced and advice is becoming a more professional industry. To be sustainable long-term there is a question about how the Best Interests Duty should evolve. The Government should consider abolishing the safe harbour.”

Advisers should be using the 2017 Code of Ethics as the “single tool” to guide them towards satisfying Best Interests Duty, the FSC argues, instead of an outdated compliance exercise.

“The Code of Ethics’ primarily would be strengthened by removing the safe harbour steps as the financial adviser would be obliged to meet the Best Interests Duty based on their own ethical approach, rather than an administrative process.”

At the Royal Commission Kenneth Hayne said safe harbour encouraged a ‘tick-a-box’ compliance regime, and abolishing the steps was an idea “not without merit”.

‘Ladder-style’ approach

The FSC repeats its call for the separation of personal advice into ‘simple’ and complex’ with an expanded risk-based framework.

The risk-based framework is based on a “ladder-style” approach with broad-based general advice at the bottom extending to specialised complex personal advice at the top.

“A ladder of advice within the advice process that provides a guardrail for consumers accessing advice determined to be lower risk before proceeding with complex personal advice options,” the council explains. “This definition enables the consumer a lighter entry point into advice on basic needs that is less costly to provide and lower risk.”

The FSC has seemingly abandoned its plan for “online tools backed by call centres” doling out simple personal advice. The original proposal from the FSC and Rice Warner had authorised advisers overseeing teams of simple advice providers.