Levy opens up: Fear of non-compliance ‘considerable’ in advice

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.”