Consumer protections should be proportionate to the risk for the consumer otherwise simple advice will never be affordable, the Association of Financial Advisers has argued in its submission to the Quality of Review.
AFA chief executive Phil Anderson tells Professional Planner the fixed cost of financial advice at the client level is so significant that ongoing arrangements are the only solution for advisers currently.
“Rather than getting advice via a long document that would take six weeks to provide, what if we could do it in front of them and leave them with something of material value for a smaller fee? We have to be prepared to move away from the paradigm that we’re currently in and not feel constrained by it.”
There needs to be a model where complexity and consumer risk is low, Anderson says, and simple advice can be given at a reasonable cost.
“If you have someone who wants to get some really basic advice – like where should I put my super and how much insurance should be in my group super arrangement – how do you get really basic advice?”
Anderson says the goal of the review should be to understand what clients value and are willing to pay for.
“We’ve had government intervention to introduce significant additional consumer protection measures and resulting in material additional costs, however is that something clients want and are prepared to pay for?”
For clients who do want a basic service, Anderson says forcing them to go through the full statement of advice procedure and then the annual renewal process doesn’t make sense.
“That adds up to significant dollars just to get an arrangement in place and then to maintain it. It’s not client centric.”
The principle of it
The submission argued a principles-based regime alone is not the answer to the current challenges with regulatory uncertainty.
Anderson acknowledges there have been discussions in the industry about going to a principles-based regime, but if that happens he believes it needs to develop in a way that makes things better not worse.
He cites Section 912A(1)(a) of the Corporations Act as a principles-based piece of legislation that offered insufficient certainty.
“It can be used in a very broad context both in a surveillance and enforcement sense so we don’t want a principles-based regime that provides no certainty in a punitive regulatory intervention environment,” Anderson says.
In its submission the AFA called for the removal of safe harbour steps or at least step G, which has been suggested by Anderson as well as another financial services consultant, and the ASIC record keeping class order.
It also recommended fixing fee disclosure statements and annual renewals by suspending the client consent obligations for three years and having the obligation automated by enabling one signature per client.
There is a high level of duplication between financial services guides, SOAs and FDSs, the submission stated, with the suggestion of a complete removal of FSGs and design and distribution obligations.
With all these recommendations, Anderson says there’s no silver bullet.
“There’s going to be a lot of things that can potentially make a material difference and we want to see technology and regulatory certainty make a real difference.”