While a two-tiered advice model proposed from the Quality of Advice Review has won over support from super fund providers, there remains trepidation towards the re-emergence of vertically-integrated advice models.
The government released review lead Michelle Levy’s recommendations earlier this month which is now under consultation. Financial services minister Stephen Jones will embark on a three-city roadshow in March to Sydney, Brisbane and Melbourne to engage with industry.
The suite of proposals includes the introduction of a two-tiered model of financial advice – expensive professional advice from accredited financial advisers and less costly advice from financial services providers including banks, super funds and digital firms, provided the client is not paying for the advice.
The two-tiered model proposed was supported by UniSuper chief executive Peter Chun when he spoke at last week’s 2023 ASFA Conference in Melbourne.
“Now is the time to really tackle broadening out advice, we are believers in this two-tier model. We should be focusing on the content of the advice and not the process… and the onus is on the institution to give good quality advice,” he said.
Concerns
The proposal has raised concerns around the re-emergence of vertically-integrated models, something the minister had previously warned against.
“One of the key concerns for us is the recommendation that non-relevant providers will be able to give personal financial advice where the client is not paying for it,” Industry Funds Services (IFS) chief executive Csaba Baranyai tells Investment Magazine. The firm is a licensee with around 120 financial advisers that provides advice to members of more than 16 super funds.
“If that does end up becoming legislated, the changes have the potential to herald the re-entry of banks and large product manufacturers back into the advice space. We feel this will undermine the attempts to professionalise the advice industry and pare back consumer protections,” he says.
At a panel discussion at last week’s ASFA conference, Levy explained vertical integration already exists within the industry through the way financial institutions give advice about the products they market with the intention to encourage a client to buy their products. “That is vertical integration.”
“Vertical integration isn’t an option in financial services. It is not feasible or desirable to separate the sale of a financial product from the issue of the financial product,” she said.
“A financial product doesn’t sit on the shelf waiting to be acquired, it is created by the legal relationship between the customer and financial institution, the member and super fund.”
Pivotal time
The proposal to expand the services super funds currently provide to members comes at a pivotal time when 3.6 million Australians are expected to retire in the next decade.
“A relationship between a superannuation fund and a member might be one of the longest relationships a person has. It makes no sense to say the fund should not be providing advice to their member from time to time and in doing so, they should give advice that is relevant to the member,” Levy said at the ASFA conference.
The chief executives of heavyweights AustralianSuper and Australian Retirement Trust have written to minister Jones to throw their support behind the recommendations reported the Australian Financial Review.
Super funds are already gearing up their advice services – including funds who have hitherto not provided advice – ahead of the recommendations being legislated. “For some [clients], it is the first time they are offering advice to their members and we are co-designing a brand new advice service model for them,” says IFS’ Baranyai.
Jones seeks to unconstrain the supply chain shortage of Advisers who are bound by a codified fiduciary duty to clients, in favour of recoupling the supply chain of non-relevant providers across the Super funds as a way to make advice ‘more affordable’ and accessible to a wider section of the population.
Noble intentions to ‘fix the hot mess’ as he put it in 2022 within 2 weeks of entering in as sitting government, however, in pursuing this pathway, the intention may end up translating into a policy available guidance with a compromise on quality of advice – when in fact the whole premise of the QAR was to find a way to improve the accessibility and function of the ‘quality of advice’ in the Advice industry for the general public – not create policy guidance on the priority of making it more affordable first, by compromising the structure of ‘advice quality’ second.
My concern with this whole QAR is that it is about “good” advice. When I went to school, we learnt about superlatives. These are very much misrepresented these days. I hate how people say eg much more prettier. Or, a little bit pregnant.
In the same way, the superlatives of good, are better and best.
We as planners, are tasked to provide best interest duty, not good interest duty.
This is where the whole idea of good advice is a major sticking point.
I for one, would consider good advice to be just ok but not the best that you, as my adviser, could provide.
No way would I be happy with good advice only – not when its superlatives are better and best.
I couldn’t agree more with Rob’s comment on this. Michelle Levy appears to have approached this specifically with a view of “How can I get large product issuers back in the game” without exposing them to the obligations which individual advisers will continue to be subject to.
Assuming this government get the “two tiered” model off the ground, and they will, Industry Funds and other large organisations will advertise “Free Financial Advice” via every media type there is. What will be the outcome? Professional Adviser numbers will continue to reduce. I see the number across Australia dropping to 5,000 or less over 5 to 10 years. As for “Free Advice” (no fee), that’s a load of rubbish. The existing fund members are paying for it since the wages of the “Free Adviser” are paid for by the fund. It is a joke! And what of “Free Adviser” numbers. These totally unqualified people numbers will balloon out dramatically. My estimation is that within 2 years there’ll be 20,000 of them across the country. The two tiered proposal isn’t about advice, its about flogging your own product without accountability. What a joke!