Simplicity and flexibility are foreign concepts in financial services yet they are the hallmarks of Treasury’s Quality of Advice Review interim proposals.
Advisers have become so used to regulatory complexity, many are baulking at proposals designed to make their life easier.
This is evident reading some submissions to the advice review proposals paper.
Their hesitance to fully embrace Michelle Levy’s proposals has been the most interesting of reactions. The staunch objection of consumer groups and enthusiastic support of product issuers has been largely expected but it seems advisers are perplexed by Treasury’s shift to more principles-based regulation, despite fighting for it.
Most intriguing is their reluctance to completely abandon Statements of Advice and replace Best Interests Duty with the simple requirement to provide “good advice”.
Their concerns are legitimate.
Giving product issuers the green light to provide personal advice with very few controls is a scary thought.
There are concerns the divide between relevant providers (financial advisers) and non-relevant providers (customer service representatives) is too wide.
Even the Financial Services Council is calling for customer service representatives to hold minimum education and training standards, preferably a subset of the qualifications required of professional advisers.
But the chasm between relevant and non-relevant providers is not a dangerous consumer hazard. It’s more like a flashing sign that will make it easier for consumers to distinguish objective, holistic advice from the restricted, conflicted type.
The bigger the gap the better, as seen in the UK’s regulatory model where there are independent advisers and restricted advisers, with clearly defined roles and labels.
This delineation supports consumers to understand what they are getting and what they’re not.
It also supports professional financial advisers to articulate their value proposition and points of differentiation.
There should be no middle ground.
The industry has worked hard to lift standards of professionalism, education and training. Introducing a mid-tier adviser, perhaps one that is only Diploma qualified, would be a greater threat to that progress than an unskilled customer service representative.
History has proven as much.
It is clear from both Levy’s proposals and her subsequent comments that she sees financial advice as a profession.
Levy is seeking to give advisers the same professional benefits she enjoys as a lawyer, such as the discretion to take simple notes and provide good advice without formal documentation.
She has come into this review with an open mind and an understanding of what works in other professions.
Her proposals signal the rise of a two-tiered system of relevant and non-relevant providers.
This model exists in other developed markets. On one hand, there are financial advisers who provide comprehensive advice and act as fiduciaries. On the other, there are vertically-integrated employees who provide product-related advice.
The advice industry should avoid selectively supporting the advice review proposals and, instead, look to support them in their entirety and give it a go.
With another round of consultation expected before the final report is due in December, the responsibility for evaluating and responding to proposals should not be left to compliance managers alone.
Boards and business leaders should lead the discussion to avoid the tail wagging the dog.
Unlike previous reforms, where there have been clear losers (usually advisers), everyone stands to benefit from the review.
Consumers will get better access to affordable personal advice. It may be limited in scope and related only to the product they are already in, but it will meet a need, at a point in time.
Product issuers will be able to better serve their customers by confidently answering personal product-related questions.
Financial advisers will be able to exercise their professional judgement when assessing a client’s needs. They will be able to provide personal advice without having to meet overly-burdensome compliance obligations.
While the advice industry has been conditioned to focus on the worst case scenario, the advice review is an opportunity for optimism to triumph over fear.
Agree wholeheartedly with your sentiments Paul. Professionals should have nothing to fear from call centre advice, I’ve lost track of the number of clients we have won because of the lack of relationship and service that is the hall mark of the call centre model.
As Dick Smith said, if you want to be rich find a business that survives and treats its’ customers poorly then open up next door and treat your customers like kings & queens.
I think there will need to be some work done on one aspect of Levy’s proposals and ASIC’s current governance model. Advisers, because they hold personal information, will need to be able to prove the advice provided is good, this burden will be far lighter on the call centre model. For better or worse the SOA is the place where the context and content of the advice is captured. The industry will need to come up with a structured data record which links the following together for 100% of fee paying clients:
– objectives
– products
– strategies
– services.
The business that develops and propagates this offer will likely do very well indeed.
Really good article Paul which I think draws out the essentials. I really like the way that you point out that the distinction will be clear. I would take it further in saying that people who know they can’t afford to hire someone to act exclusively for them still deserve to have access to service, lower level as it may be, but they should not be locked out as the current elitist regime dictates.
The only comment that I wonder about is ‘The staunch objection of consumer groups’ is expected. I wonder who these groups think they are serving in advocating the system that locks out the majority they serve from financial advice. I wonder if they have thought this through.
I agree with Paul.
We have been dictated to for so many years how to deliver compliant advice and it seems like many Advisers are now fearful of using their own judgement on how to give advice. I understand the apprehension given the risks we face but looking at the situation logically, this is what many have wanted and now we have got we asked for so why complain about it?
Since I started as an Adviser in the beginning 1987, (What a year that turned out to be) there has been a constant that all clients have wanted and are still waiting to get. SIMPLICITY and a CLEAR UNDERSTANDING.
Michelle Levy has seen that the Financial Planning Industry is choking under red tape and complexity that is causing mayhem.
When an entity wishes to sell their services, there will always be conflicting issues that arise.
In the Financial services Advice sector, planners were forced to build a moat around themselves to protect the Industry.
What the Industry forgot, is that by cutting yourself off from your customer, by making them swim a crocodile infested waterway, there are repercussions.
Constant enforcement of an ideology, eventually sinks in.
China’s great leap forward, killed over 20 million Chinese and the best thing that happened for the chinese people was when Mao died and the markets were opened to private enterprise.
Look at what the big boss / dictator in China is doing now, which is to say big business is bad, Government policy is good.
What you are now going to see, are the repercussions of that style of Government, which will mean the decline of China and the people of China themselves, who are too scared to protest.
Australia has just experienced a similar style of Government, where common sense and the Business community, were hijacked by self interest groups and left wing loonies who needed to be put back in their place.
The core foundation of a democracy, is freedom of speech, which means we all have the right to speak, though as far as the nut jobs and vested interest groups go, what we need is for all Australians to QUESTION more those ideologies and DEMAND answers, with them being held ACCOUNTABLE for their actions.
As for Advisers being free to provide Advice based on their professional judgement, in theory it is wonderful.
HOWEVER, the world we live in, does not work under the law of theory. It is much worse than that.
All Western countries, their economies and people have been enslaved under the yoke of “LEGAL INTERPRETATION,” which pretends you are free to do as you please, UNTIL your vision of what is good, may not pass a Government official / Compliance manager / Audit assessment / Legal eagle / Regulator or Judges interpretation.
THEN, let us see just how much better it all is.
Based on the current legal miasma, you will find a very different world and it is never good.
Why would I say that?
Because you have lost all ability to control your destiny from that point and to defend yourself will take time you don’t have, money you cannot afford to pay, a result that can go in any direction and in the meantime, your Business and personal life goes down the toilet.
If what Michelle Levy wants to achieve, which is admirable, then there must be SAFEGUARDS put in place to protect Advisers and Licensees from petty and unscrupulous litigation from all the above mentioned entities and from people who want money by legal deception.
The world is currently gripped by fear. Advisers have been living in their own world of uncertainty and fear for over a decade.
Platitudes and a few changes to the vast array of Regulations designed to catch everyone out by it’s design of deliberate complexity, will not provide peace of mind.
Until some certainty of tenure is provided for Advisers and Licensees, there will be resistance to fill in the moat and allow easier access for all Australians to get quality advice at affordable rates.
I 100% agree with Paul – the issue will be still be licensees structuring compliance for the lowest common denominator – however this will see the increase in self licensing which will benefit the professional advisers who know what they do, understand their value!