The Financial Planning Association has come out against the Quality of Advice Review’s recommendation to create a metric to measure the standard of advice, stating it creates the risk of developing another box ticking exercise.
The first four questions in the advice review issues paper covered how quality of advice should be measured which the FPA stated wouldn’t be possible.
“We do not believe a simple metric is possible, given the subjectivity of the client experience and the nature of advice as it is provided today,” the FPA submission stated. “We would also be extremely concerned about the cost and overall impact of implementing a metric.”
FPA head of policy Ben Marshan tells Professional Planner the association doesn’t believe a checklist can be created that accurately and fairly reflects the quality of advice given.
“That’s ultimately the whole problem with Best Interests Duty and the way it has been weaponised by ASIC, AFCA, and to a large extent licensees.”
Marshan pointed to how BID checklists became common after ASIC report 515 which reviewed how licensees audit their advisers.
“After report 515 from ASIC everybody created a BID checklist which runs pages and it’s not about whether the outcomes for clients are good or help improve their positions, it’s whether you’ve ticked the boxes. That’s the wrong measure.”
Marshan says quality of advice is about understanding the client, having difficult conversations with them, and creating safe strategies the client understands.
“You can’t do a checklist that covers that off, so we don’t support the checklist. We think you have to look at the advice and consider it as a professional.”
Needs and wants
Many of the other recommendations from the submission are based on the FPA’s ‘Affordable Advice, Sustainable Profession’ policy platform released this March and the legislative wish list released in April.
The legislative wish list called for the tax deductibility of initial advice fees, better funding mechanisms for the compensation scheme of last resort, and improvements to the education standard.
As part of its five recommendations from the policy platform, it plugged individual registration of advisers which could be part of the potential removal of Chapter 7 out of the Corporations Act.
“To a certain extent we put themes in our policy platform but we hadn’t properly sat down and themed up everything we needed to,” Marshan says. “That was an interesting exercise of trying to come up with consistent themes.”
Individual registration has received a polarising reception; although not necessarily viewed as a negative there is a view the industry has bigger priorities.
The FPA also threw it’s support behind the Australian Law Reform Commission’s suggestion of a “rulebook” model and create separate licensing rules for financial services professionals such as financial advisers and stockbrokers.
“This concept of creating a standalone financial planning act or rulebook to provide regulatory certainty is something we played through the whole submission because we think that’s a great idea,” Marshan says.
The FPA will also be part of the joint association submission which is due to be submitted on Friday afternoon.
Long time coming
Marshan says the association has been calling for a comprehensive review for the last five-plus years.
“In reality, it has only gotten worse with education standards, the life insurance framework and everything implemented from the [Hayne] royal commission because they just add layer on top of layer.”
Marshan says the Future of Financial Advice reforms were likely sufficient at bringing up the industry and since then the added regulatory changes have only cluttered the industry.
“We always argued a code of ethics was needed and higher education standards, but FOFA probably worked and wasn’t given enough time to get bedded down.”