Quality of Advice Review lead Michelle Levy believes there are enough regulatory safeguards in place for her “good advice” regime to work and to discourage any potential return of conflicted advice models.
Speaking on a webinar hosted by Professional Planner in partnership with AMP, Levy said design and distribution obligations, anti-hawking measures, the education standard and the Code of Ethics offer consumers sufficient protections.
Additionally, when it comes to qualitatively meeting the safe harbour steps in her ideal regime, Levy does not believe anything needed to be standardised.
“The point of my proposal is to look at the content of advice and then it is up to the provider of the advice or the licensee to decide what is it that [they] need to do to be reasonably satisfied this is good advice,” Levy said.
She added it would not necessarily be different to the approach to the safe harbour steps currently.
“The best interests duty in the Corporations Act would be repealed, but there would still be a best interest duty under the Code of Ethics.”
Levy believes the regulatory transition could be “less difficult” than most regulatory reform but gave no timeframe for the changes, noting it was up to financial minister Stephen Jones.
“The more people that support this and are happy with the proposals will be lobbying the minister,” Levy said. “He says he’s keen to do something. The crafting of these proposals could be quite simple and lend themselves to a simple transition period.”
How good and best sit together
Throughout what was a constructive and collaborative discussion, AMP Advice managing director Matt Lawler recognised the hard work put in by Levy and the team to listen and get broad feedback from the industry. Lawler indicated his support for the intent of Levy’s wider proposals and many of the recommendations put forward.
Lawler noted the subjectivity of “best and good” which may not quell the anxiety advisers might have about falling foul of the regulators.
“It’s going to come down to whoever is looking at that file in judgement – ASIC or AFCA – what framework are they using to decide whether it is best or good.”
Levy said BID in the Code of Ethics and the Corporations Act are about process, whereas good advice is principles-based, noting she wanted to regulate the advice outcome rather than process.
“These proposals wouldn’t fundamentally alter what they do with respect to their client,” Levy said. “If they walk through the safe harbour steps and that’s relevant to particular advice they’re giving then I would’ve thought they’d continue to do that because that would help comply with your obligations and what comes out at the end would be good advice.”
When it came to why the word ‘good’ has becoming the defining point of her recommendations, she said it was a natural part of her team’s process is identifying how the final advice product should look.
“Why I chose that word is because in so many meetings we kept saying ‘what is it we want and what do we want consumers to get’ and the answer is for them to get good advice,” Levy said. “In the bulk of cases we’ll all recognise good advice when we see it and accept around the edges it might be a bit tricky.”
Getting personal
The simplification of the advice process could potentially open the door for the banks, super funds and other large institutions to give potentially conflicted advice, but Levy said the “good advice” regime will prevent this.
Additionally, her decision to simplify the different advice definitions was because too many in the industry harboured concerns over the distinction between each profile.
“I’m proposing the personal advice definition be the only definition that we have, not a financial product advice definition which is then subdivided between general advice and personal advice.”
However, it meant that she does want to open the door for product issuers and super trustees to give personal advice, most likely on small topics, but the “good advice” duty will apply.
“The way I have proposed it is there would be a distinction for a person who charges for advice and a person who doesn’t charge an advice fee acknowledging the costs have to be met somewhere.”
She said this made sense because paying for full advice would lead to the expectation a professional standard would apply, but this might not necessarily be the case for limited advice.
“If I’m speaking to my super fund, bank or insurer and I’m not paying for the advice I don’t think the expectation is the same [as holistic advice],” Levy said. “But what does happen here… their obligation is to give good advice. For them they have to ask the question ‘what do I need to do to be satisfied that my staff are giving good advice?’”
Trustees will be at a crossroad for when it is appropriate to subsidise advice for all members and have BID as well, Levy said, as well as what steps they need to put in place to be sure the advice they give to members is “good”.
“If I was a financial adviser I wouldn’t be worried about having super funds giving comprehensive advice to their members other than with relevant providers.”
Lawler noted the return of conflicted advice is a concern for AMP which has sought to keep as much distance between product and advice as possible while keeping it under the same roof and was heavily supportive of Levy’s recommendations.
While there is still more but to be done he said this is a good start, and acknowledged the work put in by the company and industry at large to avoid the same mistakes made in the past with conflicted business models.
“We’ve worked so hard and many advisers have jumped through many hoops in order to get to the position we are today,” Lawler said.
“The fear is if we open it up without those standards and requirements is that we’re moving back to the bad old days of dare I say product flogging. We’ve worked so hard to separate product from advice.”
Ditching the advice epics
Levy had been well-educated by the industry over how expensive Statements of Advice (SOAs) were to produce and how much it added to the cost of advice.
She consulted with ASIC and AFCA to establish with the compliance bodies over the value it provided.
“Lots of [consumers] don’t print them off,” Levy said. “They want a recommendation from their adviser or product issuer and may or may not want it written down.”
Using an example of a financial adviser that has an ongoing relationship with their client, she said an adviser might write detailed notes when they first meet and refresh that from time to time, but there might be phone calls when they want a quick recommendation.
“All they would have to do is keep their own record,” Levy said. “What I envisage is keeping a record of the advice; it’s just the recommendation and the opinion. It’s not anything else. It’s then a question of how does the adviser want to protect themselves in the event a claim is made.”
Levy said it will ultimately be a matter of judgement for the provider to decide how many notes they keep for their own protection and that could include recordings and video SOAs.
