The parable of the tortoise and the hare is particularly relevant for financial services; the hare with all her natural advantages and skills speeds towards the finishing line only to be overtaken and lose the race because of her delays and bad choices.
With the recognition of an advice profession within view, the fragmented advice industry pauses and, distracted by trivialities, is overtaken (and supplanted) by product issuers and software providers.
While I unequivocally support making advice more accessible and more affordable, the Quality of Advice Review proposals seem to prioritise product distribution over advice. It’s a retrograde step for both consumers and the emerging advice profession and one likely to lead to the re-emergence and dominance of the vertically-integrated licensees whose systemic and recurring misconduct was exposed by Commissioner Hayne’s review.
Apart from the self-interest that flavours most responses to Treasury’s proposals, the celebration of a “two-tier” advice ecosystem is perhaps the most dubious benefit; it trivialises advice (and the advice profession) by giving equivalency to product information disguised as advice. Product information has its place, and can satisfy some needs, but it is manifestly not advice. Being told about the features of your industry fund is not equivalent to advice on what fund best suits your needs. Advice is, or should be, the bona fide consideration of strategies and alternatives that will satisfy clients’ needs and prudently guide their future conduct. Advice isn’t, and shouldn’t be, defined by the product or the self-interest of the provider.
As an industry, we too often distract ourselves by pedantically arguing over scope and remuneration models instead of defining the fundamental truths underpinning the advice profession; if you do not actively consider and recommend alternatives, you’re providing product information, not advice. I accept that some consumers may need little more than product information and gentle guidance to satisfy their needs and objectives, but I don’t believe that’s true for the majority. In fact, most consumers have a profound (but often unidentified) need for clear and considered recommendations about how best to achieve their goals.
You may not consider the advice review as an existential threat to an advice profession, or recognise the need to define your value, but it is, and we should.
Good advice changes lives. Advice should be more accessible and more affordable, but I struggle with the concessions provided to those that are not “relevant providers”. Anyone who provides financial advice on which another may rely to their detriment is a relevant provider and should have an obligation to act in their clients’ best interest. It’s not the payment of a fee, nor the ongoing advice relationship, that creates this obligation but rather the unequal relationship between the parties and the vulnerability of the client to the advice they receive.
This duty should exist irrespective of how advice is delivered. Algorithms, trustees and product issuers who provide “guidance” to those that who act or rely on it should not otherwise be exempted from these requirements. To be clear, exempting these providers would both increase the risk of significant client detriment and “expose consumers to the risk of poorer quality advice”.
The most rational response for advisers facing these reforms might be to surrender their licenses or authorisations in favour of providing a “free” service assisting consumers to invest in schemes and arrangements owned (or partially owned) by the adviser’s entity. By eschewing commissions and fees, in favour of product fees, they cease to be relevant providers and avoid all the compliance obligations about competency and conduct that burden advice providers.
This is completely rational response to regulatory change is unlikely to improve the quality of advice.
Personally, I’m not convinced that Treasury either understand advice or appreciate advisers’ reluctance to embrace the retreat from professionalism, because, if they did, they’d more properly demarcate financial advice from financial product information. If you believe in the value of advice, and the need for an advice profession, then this is not the time to stop and rest. Instead, advisers should resist the promise of immediate reforms in favour of more enduring benefits. To do otherwise would be to allow product issuers to redefine and dominate advice.
Everyone gets so caught up in the “conflicts of interest” issues that they forget, this is not what is holding back the profession. All professions have their conflicts, including medicine, law, accountancy, etc…but they manage them utilizing true professional judgment…What we need is to keep the industry-minded, profit-driven large vertically integrated businesses unable to provide advice in any format. Sure, being able to describe and set up a product for one of their customers is understandable, but as soon as the customer asks the question (in any format), “what should I do?” then it requires referral to advice.
Sean, I think your comments are relevant. I don’t agree with SoA’s, not because I don’t agree with giving a client a statement of advice, I just think what we have been forced to give is not as per a profession. I believe it’s constructed largely by lawyers, trying to duplicate “best practice” but in reality, we have been left with a non-personal prescriptive document…not unlike a classical piece of legislation.
So …yes, treasury, lawyers, and legislators, do not understand best practice in financial ADVICE, and just like law, medicine etc, the profession needs to largely “self-regulate”, with minimal protective legislation in place, just like law or medicine or any other true profession. The work of a true professional is not really understood by the Lay person or outsiders, therefore it largely depends on the unity of the practitioners to guide best practice. I think we have been let down for many years by our lack of professional support…Its not just the fault of professional associations, who largely rely on the input of professional members and oversight, but also the profession itself. It has not promoted itself well to regulators for many years. I blame the vertical integrated players for this who have instilled a benign dis- unified mindset into many of the practitioners promoting an industry mentality, not that of a profession. We are now left with the mammoth task of undoing the damage. Parts of Michelle’s proposals, as you so well pointed out, will undo this and set us back again.
Phil, you won’t find a fiercer critic of the Statement of Advice than me. They are, at the best of times, obtuse, intimidating, dull and repetitive. It seems to me that if we believe advice professionals have the skill and competency to successfully apply their education, experience and ethics to solving their clients’ problems, then we should allow them to determine the form and format of their advice how best to present their advice in the clients’ interests and in a manner consistent with the code. An SOA is a consumer warranty document and it’s in everyone’s interest to make these shorter, clearer and more effective.