With stronger consumer protections in place in the advice industry and conflicted remuneration eliminated, Quality of Advice Review lead Michelle Levy has argued larger institutions are in a better place to receive more flexibility to give advice.
The advice review proposals were released earlier this month which are now under a government consultation.
The contentious part of Levy’s proposals – which has seen opposition from consumer groups and reticence from the minister – is allowing large institutions more freedom to give advice.
Levy previously responded to criticism her proposals exempted institutions from any best interest/good advice duty, explaining that while employees are exempt (as they are required by law to act in the best interest of their employer) the institution must act in the best interest of the customer.
Jones has publicly spoken about his discomfort for giving super funds more leeway with the risk that doing so may go further down the path of vertical integration.
However, Levy argued the institutions are a natural place to give advice.
“Not all advice, but some advice,” Levy said at the SMSF Association National Conference on Friday in Melbourne.
“I’ve spoken quite a lot about the idea of financial institutions being obliged of having a duty to speak to their customers and give them – I’m using the term loosely here – sound advice. You don’t pick up a financial product off the shelf and take it home.”
Levy noted that a customer’s relationship with a super fund is likely to be the longest commercial tie in their life and if funds are serving client needs in every other facet there isn’t a just reason not to allow them to assist with advice.
“It’s non-nonsensical and stupid to think these funds shouldn’t be able to give them personal advice along the way to assist them,” Levy said.
“That wasn’t my purpose, to help superannuation funds or banks, it was about the customers.”
Levy added the advice ecosystem is in a different era with laws in place to prevent conflicted remuneration and other potential anti-consumer pitfalls.
‘Stupid situation’
Alluding to comments she made recently about banks already giving advice on products, Levy said they aren’t hamstrung in other areas of product, just financial advice.
“They don’t have the constraints about giving advice on credit cards or home loans, but then they can’t give personal advice a term deposit,” Levy said.
“It’s a stupid situation.”
AZ NGA found Paul Barrett, an investor in many non-institutional financial companies, said institutions do have a role to play in the industry.
“[Levy] has said we are going to need a broader church delivering advice; it’s inevitable and the right guardrails in place can have massive benefits to consumers,” Barrett said.
“Financial advice can finally become the public good that it always should have been. Every Australian deserves access to financial advice.”
SMSF Association CEO John Maroney, said in the lead up to the session that the current regime is “stuffed”, added during the panel that accountants are needed to be included as part of the “broader church” of advice.
“We certainly believe there is a role for accountants, partly as an obligation of what they are allowed to do as tax advisers,” he said.
“If you’re going to expand a broad church to include employees of institutions… [it doesn’t make sense] to not include accountants as part of that.”
Great wisdom
Levy said she tested the ideas with the industry and even consulted with Kenneth Hayne, who’s recommendation from the financial services royal commission led to her review.
She said she’s “puzzled” by the decision from financial services minister Stephen Jones on the need to further consult on the proposals.
“I know that I’m speaking to some people here who are disappointed,” Levy said.
“These proposals are overwhelmingly good for the entire industry. Much more importantly, they are overwhelmingly good for consumers.”
She added her motivation was never about keeping any particular stakeholder in the industry happy, instead reflecting back to the terms of reference handed down 11 months ago.
“The terms of reference are really clear – it’s about accessible, affordable, quality financial advice,” Levy said.”
“That was my role. Along if the way if I could make people happy, of course I wanted to. This is overwhelmingly good for each of you. It may not be everything in your wish list… but there’s something in there for everybody.”
The road to professionalism
FPA chief executive Sarah Abood said the proposals show that financial advisers are professionals who deserve a principles-based regulatory regime.
“We’re not talking about getting rid of everything,” Abood said.
“We’re not talking about [going] scorched Earth. We’re talking about a shift from a process-based tick-a-box approach to legislation.”
Barrett said that regardless of what happens, professionalism in the industry is inevitable and it’s not waiting upon policy makers or regulators to act.
“The industry getting on with it,” Barrett said. “You can run south on a ship heading north all you like, but you’re still going north.”
