The Quality of Advice Review proposal to allow non-relevant providers to provide advice could open the door for provisional advisers to become more commercially attractive, by operating in a similar function as a law clerk for a legal firm.
One of the key recommendations of the advice review was the ability for non-relevant providers – those who aren’t licenced to give advice – the ability to give advice if they aren’t receiving a fee or commission.
Speaking on a webinar hosted by Professional Planner in partnership with AMP, advice review lead Michelle Levy posited this is a way not only for super funds and institutions to give advice, but also smaller advice practices.
Levy, with a background in the law profession, compared to how a solicitor would work who would have a legal clerk doing much of the work in the background on behalf of the solicitor.
“It’s my advice, I get paid and I pay my law clerk – that’s how I think it should work,” Levy said.
“You go to a financial adviser, pay a fee for financial advice to your professional financial adviser. [The adviser] has done all the training and complied with the Code of Ethics.”
Levy highlighted that regardless of whoever is doing the background work, the burden falls to the licensed adviser who is directly receiving the fee or commission and it is up to them to perform the due diligence to make sure the advice is of an acceptable standard.
“It’s not that there isn’t a role for the paralegal – or paraplanner [in this context] – there is, but the advice provider for the purposes of the law is the supervising financial planner,” Levy said.
Noting the potential advantages of Levy’s proposal, AMP Advice CEO Matt Lawler said this presents an opportunity to make provisional advisers more commercially viable for small businesses.
“If you’re a practice and you’re thinking about bringing a young person into your business – they’ve done the education or [are] on their way, but they go through a professional [year] period where they’re supervised, but they’re not revenue generating at that point,” Lawler said.
“They could be revenue generating for those restricted areas of advice, simple superannuation and insurance – remembering they’ve done their degree or on their way to doing their degree.”
Commercial viability of PY advisers has been one of the main criticisms of the system, with small businesses concerned about investing in young advisers who would inevitably get poached.
Lawler said PY advisers are degree graduates and should be considered for giving advice under the guidance of a licensed adviser.
“At least if they’re generating some revenue during that period, it makes it easier for a small business to make a decision to bring a [PY] person in,” Lawler said.
The expansion of advice
The ability for super funds to give more advice has received polarising views with consumer groups expressing concern of the value it provides and the potential loopholes that could be exploited.
Levy said basic questions should be able to be answered by these employees.
“There are not enough financial advisers in the world to meet the advice needs, but that doesn’t mean a financial adviser is better equipped than somebody else to give that really simple advice,” Levy said.
“I don’t know exactly what the experience and training they need is, but the person that can answer question is the person responsible for that advice.”
Levy said this proposal has consumers front of mind, adding “not all advice has to be driven by financial advisers”.
“Their staff won’t be exercising discretion unless they have the relevant training and that becomes a question for that institution,” Levy said.
“They have a responsibility – they have a liability under my proposal. I don’t think this is something that should scare financial advisers. It provides a training path and a career path for people.”
Asked why advisers should be held to a higher standard for professional qualifications, Levy said because they’re providing a completely different function.
“The person that doesn’t have that degree is not a financial adviser, they can’t use that term [and] they can’t charge for their advice,” Levy said.
Clarifying whether a hypothetical licensed practice could employee a non-relevant provider to give financial advice, Levy said not if they’re directly changing a fee.
Ultimately, the burden of responsibility comes down to whoever is holding the license and the advice given is in their name.
“You can employ that person, the advice has to be yours,” Levy said. “In that case, you would have somebody prepare that advice and you would adopt it as your advice. You would be responsible.”
Affordability in frame
Defending the spirit of the proposal, Financial Advisers Association chief executive Sarah Abood said it would be great if every Australian could afford financial advice, but it’s not a practical reality.
“The product and service that our members provide to Australians is a fantastic service,” she said.
“People do understand what financial advisers do is critically important, but the dilemma that advisers have is they can’t provide that service to people who can’t [afford it].”
Abood said the FAAA is trying to help reduce the cost of advice, but that won’t solve all problems in the profession.
“It’s going to solve some of it so people can advise more clients than in the past,” she said. “It’s important to recognise an adviser can’t advise a consumer unless it’s in the consumer’s interest to pay that fee.”
Abood said that’s the fee-paying aspect Levy’s proposals become controversial but has the potential to broaden advice.
“Many of these consumers can be better off if they receive better information about their financial affairs… so they’re not off on TikTok loading themselves up on cryptocurrency, they’re doing sensible things to pursue their financial wellbeing,” Abood said.
“In Michelle’s world they’re not a fully qualified financial adviser, but they still need to have relevant education.”
