If regulators are not clear on how they will enforce principles-based regulations as proposed in the Quality of Advice Review, the industry will fall back to relying on prescriptive processes.
One of Levy’s key recommendations is the for the industry to move to principles-based regulation rather than the current prescriptive system, pejoratively known for its tick-a-box approach.
Speaking at a session on Friday afternoon at the Oreana Financial Services Conference, Insignia Financial chief executive Renato Mota said this transition will be the single biggest challenge for the industry if the proposals go through as suggested in the interim paper.
“The prescription isn’t just the regulation; it’s also the licensees,” Mota said. “As the owner of a number of licensees, that’s because it’s our licence at risk, it’s our reputation, our capital… and we’ve contributed to that.”
Although Insignia is supportive of the proposals, Mota said, a principles-based system requires all stakeholders to be clear on how the system works and to conduct case studies on how it is applied.
“We need agreement – as soon as one piece of that puzzle starts to get prescriptive, the principles will break down and we will revert back to prescription,” Mota said.
“We would welcome the opportunity with regulators and legislators as a licensee with advisers to understand the practicalities of this and get to an agreement we we’re defining principles by the same means otherwise there’s the risk we find ourselves back here.”
Driver of efficiency
Mota said the advice review is giving a much need challenge to the status quo and the proposals improve adviser efficiency.
“There are plenty of recommendations in there that will make it more efficient to provide advice,” Mota said. “I’m confident that advisers, given an extra 20 per cent of time or an extra day in a week, will reinvest and see more clients. It will make advice more accessible.”
Netwealth managing director Matt Heine said the reduction of red tape would drastically improve advice implementation.
“We haven’t done the modelling but if [holistic advisers] are about to see somewhere between 120 clients now… if you move to 180 or 200 clients that’s going to have a significant impact on your business,” Heine said.
AMP CEO Alexis George said it was important for the industry to come together on the final report even if it is not 100 per cent on board with the recommendations.
“We haven’t seen the final report yet but any one of us would not agree to certain elements of that draft,” George said.
“I do admire the bravery in challenging in where we’re at. As an industry, if we start nit-picking, I worry that we might not get a change.”
Advice gap
The advice review proposals have received criticism that it may open the door for product providers to give advice, but Levy had previously disputed the notion her proposals would push the industry back to the days of conflicted advice models because any advice must be in the best interest of the consumer, or “good advice”.
Mota said the review also creates an opportunity for super funds and banks to play a role in stripping down what he called “the walled garden of financial advice” which referred to providing guidance or other services to start people on their advice journey.
“The thing that has surprised me a little is the criticism of those recommendations lose sight of a very important behaviour – this narrative that people don’t get advice. People do get advice,” Mota said.
“They’ll get [advice] from Dr Google, they’ll get it from their Twitter feed, they’ll get it from their next-door neighbour. It’s just not particularly professional advice.”
As the CEO of an organisation currently paying off remediation and re-branded in the wake of it, Mota said the major organisations are quite wary of putting their reputation on the line.
“To create an environment where you have organisations that are prepared to put their reputation behind quality financial guidance that compliments holistic advice is a positive for the community more generally,” Mota said.
Heine added there should be little concern for advisers about super funds, which focus on a completely different segment of the market.
Mota said super funds will be putting their brands and reputations at risk and have no interest in being involved in any major headlines if something where to go wrong.
“In that environment, large organisations are going to be very diligent in how they approach that one,” Mota said.
Mota said what led the previous industry business model astray was cross-subsidisation and each business must work independently.
“Internally and externally, we compete in an open marketplace,” Mota said. “There is the network effect; there is conversations and collaboration that occurs through the business. We think the ultimate test is what the outcome to the member or the client.”
On Monday afternoon, Insignia announced it had completely separated the pensions and investments business from ANZ, which it claims is the first separation of a superannuation business from a big four bank.
Help me help you
Asked about what advisers could do help the companies that service them, Heine lamented the strained relationship between advice and product.
“The industry is a partnership and to reflect on the past couple of years it was disappointing to see there was groups of advisers that broke away and it became an ‘us versus them mentality’,” Heine said.
“Product providers were being blamed for imposing a net set of rules which were imposed on us by the regulator. As an industry we are trying to work together and feedback that goes both ways is important.”
Fee consent renewals have been cited by much of the industry as a major hindrance and Heine said it was an example of the product segment of the industry struggling to keep up with the regulation.
“DDO was a good example of the industry coming together and we were working closely with the other platforms and advisers,” Heine said.
“Fee consent renewals was rushed through regulation was poorly implemented. Everyone was scrambling. We had to make sure we could get something to [advisers] to make sure you could get paid.”
I spent my entire 34 year career as an Adviser and Practice owner saying NO to bad policy.
I always listened and understood where the other party was coming from, then I ASKED QUESTIONS AND DEMANDED ANSWERS.
If the answers made sense, I was the first to agree and implement those requests / demands.
If there were no / insufficient intelligent and well articulated responses to my questions, then I always gave the other party the opportunity to come back and continue the discussions at a later date, though until they could prove that what they wanted, made sense, was beneficial to our clients and did not cause undue or unwarranted negative impacts on my Business, then they were shown the door.
This has been the problem for over a decade, where people who are removed from, or never been directly involved in running Advice practices, were given a voice and positions of power to negatively impact the entire Industry and all Australians, with impunity.
If all these vested interest parties who have caused chaos, had been held to the same Best Interest Duty that Advisers have been working under, then 90% of them would not have submitted their self interest compilations and we would not have had to be dragged into the “maze of no positive outcome.”
Michelle Levy has done a great job of highlighting the issues.
What we need now is less noise, more experience and big picture integrity that ASKS the right questions and DEMANDS the right answers.