With over 100 submissions being presented to the Quality of Advice Review, one of the key takeaways for Michelle Levy three months into the job as review lead is the considerable “fear” of non-compliance in the industry.
Speaking at the Professional Planner Licensee Summit in Katoomba Monday morning, her first public event since taking the job, Levy said advisers and licensees have expressed concerns that even minor breaches of regulatory requirements will trigger high penalties.
“There is considerable fear of non-compliance in the industry,” she said. “This has resulted in a compliance-driven approach across the industry where the tolerance for regulatory risk is very low.”
Treasury team will shortly be conducting a survey of a random sample of advisers to gather data on their experiences with the regulatory framework, Levy added.
The Allens partner said feedback indicated regulatory costs and complexity in the industry are not only pushing up the cost of advice but are affecting client engagement.
“Fee disclosure statements, fee deduction consent forms and statements of advice are often identified as regulatory requirements that are not viewed by the industry as value adding for clients.”
Lost in translation
Levy said compliance with the law, compliance with the requirements of licensees and product issuers, and uncertainty about what the law requires are common themes to come out of the submissions.
“Others are mistrust of the industry, uncertainty about what it can provide and who it is intended for. The cost of advice is an impediment.”
Levy said she agrees with the assessment from the industry that the level of consumer protection should align with risks associated with the advice.
“Some submissions argue that ‘strategic advice’ should be regulated differently from ‘product advice’ because there is a reduced risk of consumer detriment associated with this type of advice. There is also appetite in the industry to move away from ‘general advice’ as a label and for it to be rebranded as purely ‘information’, as it is not based on the client’s personal circumstances.”
The concerns about general advice are shared with Levy, but she said re-labelling it as ‘information’ is not the answer because general advice must contain a recommendation or opinion to fall within in the term.
She also believes the government and not for profit sector could do more to provide financial advice to consumers who are not able to pay for advice.
Out of commission
Levy noted there are concerns that further restrictions on the payment of life insurance commissions will reduce access to advice on risk products, resulting in lower level of insurance. Returning to commissions, however, is no panacea.
“Many people say that commission provides the answer,” she said. “While consumers do ultimately meet the cost of commission, the payment is deferred and because it is not an out-of-pocket expense it is in fact more affordable.”
She also had concerns with commissions as a way of paying for advice as it is not a payment for advice to the consumer but to the adviser for sale of a product.
“The product issuer is indifferent to the quality of the advice provided. In my view the sale of a financial product should be incidental to the advice, but because it was the way the adviser was paid it became central and it compromised the quality of advice.”
Most risk specialists have left the Industry and many of the remaining Advisers who provide risk advice services, are scaling back due to the constraints which make risk advice unprofitable.
I have spent the last decade explaining what would occur if the proposed and now in place, restrictive Regulatory regime was put into effect.
Everything I wrote then and right up to now, has come to fruition regarding the Life Insurance advice maze which has caused massive damage to Australia and the millions of people who will not be able to attain appropriate advice or cover due to the rising costs.
I have made many submissions and written hundreds of articles spelling out the issues and the solution, which MUST include a separation of risk advice from Investment Advice, with appropriate upfront and ongoing education that is specific to the work performed.
There must also be sufficient reason and expectation of an ability to work profitably and not to live in constant fear that every time some Insurance advice is provided, that the Regulator, or Lawyer, or judge, or Auditor, or Licensee won’t disagree based on their interpretation of the Regulations that NO-ONE has been able to come up with common sense consensus.
It is all very well for many learned people who have no actual experience in Advice, to make suggestions on the Quality of Advice review, though while this has been ongoing for years now, the current unworkable maze has driven out over eleven thousand Advisers, who most of them, were hard working, honest people with years of practical experience, now gone.
There has been massive loss and very little gain after Billions of dollars has been spent of Tax payer and Shareholder money and there is still no clarity as to what is or will occur in the future, which based on the current declines, will be too late for many more decent people over the next 12 months.
The answer has always been in plain sight.
What we need is for the decision makers to open their eyes and ears, then make the necessary changes so the Life Insurance Industry can rebuild.
Yes, advisers should provide all of these support services fit free. Problem solved. Lol