Redesigning a regulatory framework for a professional service was always going to generate polarising feedback, but Quality of Advice Review lead Michelle Levy has conceded she has struggled to convince the consumer groups of the merits of her proposals.
The government released Levy’s proposals last week which saw positive feedback from the advice profession and auxiliary industries, but a negative reaction from consumer groups.
Financial services minister Stephen Jones has opted to take the proposals to a consultation and Professional Planner will host in the minister in March which includes an industry Q&A.
Speaking at the Actuaries Institute advice seminar on Wednesday evening, Levy disputed the claims she is winding back consumer safeguards for advice.
“I haven’t recommended the winding back or dismantling of FOFA and it’s one of the foundations upon which the recommendations sit,” Levy said.
“As hard as I’ve tried, I’ve not been able to persuade Choice and consumer representatives that the recommendations are, in fact, good for consumers.”
She pointed to commentary specifically from Choice CEO Alan Kirkland that her proposals would lead to another royal commission.
“Choice paints a truly terrifying picture of radical and untested changes that will be a disaster,” she said.
“It’s hard to read these words in Choice’s media release as anything but heavy handed. They’ve omitted a lot of the arguments and reasoning in the report.”
Levy specified that her proposals are a way to refine the regulatory framework to make it simpler by removing overlapping rules.
“I am struggling to understand what it is I’m undoing… I disagree with the argument it is removing protections, but I agree that’s how the media and people are seeing it.”
Regarding criticism of the purpose of the review, she reiterated it was specifically designed to be a review into the regulatory framework applied to the provision of financial product advice.
“It wasn’t a review into financial advice, by financial advisers, although that formed part of it,” Levy said.
Vertical integration ‘alive and well’
Levy noted that financial institutions – the banks, super funds and insurers – still give financial advice today which is often intended to encourage consumers to buy their products.
“This is obvious, but it seems to be ignored in much of the negative commentary about the recommendations – vertical integration is alive and well, and lawful,” Levy said.
Noting her comments in her report, she said it is not feasible or desirable to separate the sale or issuance of a financial product.
“A financial product doesn’t sit on the shelf waiting to be acquired. It’s created by the legal relationship between the customer and the financial institution,” Levy said.
“The financial institution owes a duty to the customer not only to tell them about the product – and they must do that in a PDS – but to tell them whether that product might suit the customer’s needs.”
Levy said in her regime that financial institutions shouldn’t be selling products to a customer that aren’t suitable for their needs and other consumer protections like the design and distribution obligations help address this.
“The recommendations I made will go further – they will make it easier for the financial institution to recommend a product to a customer only if it meets the needs of the customer,” Levy said.
“The customer should not have to go to a third person to decide whether the product is suitable for them.”
Keeping the burden on the institution
Levy said it is “unfair and unrealistic” to impose a best interest duty on an employee at a bank, super fund or insurer.
“They are paid by their employer to do what they are told to do and in doing so they have a duty to act in the best interest of their employer,” Levy said.
“My recommendation is the financial institution has the duty to give good advice. It is then a matter for the institution to determine how that is done. There’s no reason to think that advice will be of a better quality if the provider had an obligation to act in the best interest of the customer.”
She also rejected the idea of allowing non-relevant providers to give simple advice.
“I don’t think that’s possible – what’s simple for one client won’t be simple for the next person,” Levy said.
“I don’t think anyone could come up with a list in advance which could separate those two things. I recommended the line be draw where there is a fee for the advice or a commission.”
Last year, financial services minister Stephen Jones said he doesn’t believe the banks will get back into advice and Levy holds a similar belief.
“It seems to me unlikely,” Levy said. “The banks got themselves in trouble not so much because of their advice, but because of their charging fees for no service.
“That come out of conflicted remuneration where they had commissions [and instead changed to] ongoing advice fees but they forgot to give advice.”
She also noted that Dixon Advisory is an example of misconduct that happened while under the best interest duty regime.
Choice, over the years, has always shown how LITTLE they understand how the Financial Planning Industry works and what is a realistic solution to issues.
What Michelle has done is to highlight the disaster that IS the current regime of Regulatory road blocks that have caused so much economic and personal grief.
However, do not ask Michelle or ANY lawyer to find a way to put the new regime into legible, clear and concise wording that everyone will understand.
That was beaten out of every Lawyer from day one of their voyage into Legal land and they are now and for countless years, taught that plain English is the bastion of the lower class and that the poor wretches that the rest of humanity belong to, must be protected by the great wizards with their horsehair wigs and peculiar interpretations of what should be, or not to be.
The Banks and the large end of town will Lawyer up and once again delve into the opaque mists of Regulation land and come up once again with wonderous interpretations to justify their huge fees and of course to show the Companies that pay the huge fees, just how clever they are and therefore totally deserve the money.
Why is it, that the very people who put together the Regulatory miasma that has caused so much pain, are going to be given another crack to fix the mistakes of the past, when everyone, including the Legal fraternity, know they cannot and will not change how they operate.
Michelle has done a very good job in highlighting the issues and her solutions are better than what we have today, THOUGH there must be clear and concise provisions to show that there will be a VERY BIG difference in “Good” and “BID” Advice and that customers / clients need to know what THAT IS.