From this information, an adviser can conduct a financial needs analysis and identify a client’s total advice requirements.
When an adviser and client revisit the scope of advice, it is almost always much broader than what a client originally thought they needed.
People don’t know what they don’t know, which is why professional advice is so valuable.
Only then is an adviser in a position to form professional opinions, develop strategies and give good advice.
Trying to give personal advice of any kind without a comprehensive fact find and needs analysis could be likened to a doctor accepting a patient’s self-diagnosis.
People usually visit a doctor because they know they’re sick. They may have self-diagnosed the flu, based on symptoms like a sore throat, blocked nose and headaches.
They go to a doctor for advice on treatment.
If a doctor accepts a person’s self-diagnosis and prescribes medicine to treat their symptoms but fails to investigate further and misses a more serious underlying condition, is that still good advice?
Is limited personal advice akin to treating a rash but missing a tumour?
According to Treasury, personal advice doesn’t need to be holistic to be good. It can be provided piece-by-piece.
If that’s the case, then at the very least customers must be informed of their total advice needs and the limitations of the advice they’re actually getting. They should understand the potential consequences of only getting limited advice in order to make an informed decision on whether they need a more complete solution.
Present experience tells us that, unless mandated, this is unlikely to happen.
Amidst all the debate about advice accessibility and affordability, it has been lost that there is legally nothing stopping product issuers and superannuation funds from providing good personal advice right now.
If they wanted to better serve their members and customers, they could gain the necessary licences and employ qualified advisers.
Many choose not to because of the repercussions, namely objective advice. This could potentially lead to account consolidation, outflows and loss of fee revenue.
It has not been in the interests of product issuers to provide personal advice. There’s nothing in it for them, only their members.
While Treasury’s efforts to make personal financial advice more accessible and affordable by simplifying the advice process are important and appreciated, this reality should be remembered.
Therefore, Treasury should recommend that all personal advice providers conduct a comprehensive fact find and needs analysis.
Furthermore, the proposed definition of good advice (advice that is reasonably likely to benefit the client, having regard to the information that is available to the provider at the time) is too subjective and should be tightened.
To provide certainty, operational standards should also be available to help personal advice providers meet the good advice obligation such as a list of recognised fact finds and risk tolerance questionnaires, and broadly accepted methodology for addressing common scenarios such as calculating person’s retirement income needs or level of life insurance cover.
This would benefit product issuers, many of whom would be giving personal advice for the first time. Importantly, it will help protect consumers too.