Quality of Advice Review lead Michelle Levy has acknowledged that the Minister for Financial Services’ preference to simplify Statements of Advice rather than remove them altogether is likely to generate a swifter result for the profession.
Levy had proposed removing the requirement for SOAs but the Minister, Stephen Jones, has hinted at setting up a regulatory environment where only shorter documents are required.
Speaking on a webinar hosted by Professional Planer in partnership with AMP on Monday morning, Levy said Jones’ proposal wouldn’t need legislative change.
“The kinds of things that could be done by regulation rather than legislation would be to remove some of the content requirements from an SOA, for example, but you couldn’t remove the requirement for an SOA,” Levy said.
“I look at the content requirements and they’re not substantial as it is, so I don’t think we can blame the content requirements for an SOA on the law itself.”
Financial Advisers Association chief executive Sarah Abood argued the removal of prescriptive SOAs needed a “radical re-think” and will be a non-controversial change.
“When I say that, there isn’t universal agreement across the industry on that, although the agreement in the profession is very strong,” she said.
AMP Advice managing director Matt Lawler said Levy’s proposal to remove SOAs was well liked because the lengthy advice document now had a “life of its own” and had become a compliance document rather than one that best served clients.
“I know there’s a lot of debate around this – that it’s the lawyers or licensees that make the SOA overcomplicated – but but there probably is an element of truth in that,” Lawler said.
“’Clear, concise and effective’ is what is required for disclosure to clients and you could argue SOAs are not that for clients.”
Asked how quickly AMP could simplify SOAs with or without legislative help, Lawler said there’s always talk between licensee heads about alternative ways to deliver advice and pointed to the FPA’s work on video SOAs.
“It’s still the law to do an SOA,” Lawler said, although different people will continue to have different interpretations about what should be included in the document.
Avoiding controversy
Abood said the priority for the association is gaining quick action on changes that aren’t “controversial”.
“To use the Minister’s words, they’re ‘no brainers’,” she said, referring to comments made by Jones at the Sydney stage of the Professional Planner roadshow.
“Whether the path to achieving them is quick is another matter but certainly there’s no dissent by and large in the profession.”
In addition to SOAs, Abood praised Levy’s recommendations and Jones’ commitment to streamlining fee consent and fee disclosure statements, as well as removing advisers’ requirement to report on the Design and Distribution Obligations.
During the Professional Planner roadshow Jones expressed a willingness to remove the Safe Harbour steps, despite previously suggesting they would be retained.
Lawler said the discussion around safe harbour was important because the profession has now matured beyond the need for tick-a-box compliance.
“That’s not what makes good advice; good advice is the outcome for the client and the client being put in a better position,” Lawler said.
“That removal might scare some people because those protections are being taken away, but when you look at it alongside the professional standards, the professional standards are almost a replica of what we’re talking about there.”
Abood said the profession needed clarity from the regulator on how it views the proposed reforms.
“Famously, we haven’t seen ASIC’s response but we certainly do consider the regulator would need to address some of these proposals,” Abood said.
She added that it’s important for licensees and advisers to understand how the regulators, the complaints authority and the courts would approach any proposed regulations.
“Some of the reservations by the proposals are driven by the uncertainty in that area,” Abood said.
“We have to give the profession and industry confidence to act in order to achieve the benefits the proposals set out to achieve.”
Superpowers
While there has been criticism for Levy’s proposal to have non-relevant providers give advice via the AFSL of a relevant provider, the Minister has hinted that super funds will likely need to be given an expanded ability to give advice.
Lawler said the intention of the advice review proposals is to make sure advice is appropriate for whoever is receiving it, and that advice given by super funds will be limited.
If an individual’s advice needs are relatively simple, “we should be able to give them simple advice, quickly, efficiently and effectively”, Lawler said.
“If [their needs are] complex, we’re going through a much more rigorous process,” he said.
Acknowledging the argument that super fund employees may not need to meet the same education requirements as financial advisers, Lawler said they will be answering simple superannuation-related questions.
“I know people [are saying] should we have people there that haven’t done all the education that aren’t fully qualified advisers talking to clients about what they should or shouldn’t be doing,” Lawler said.
“But we need to take a step back and look at the current situation we’ve got. There will be millions and millions of questions asked today that cannot be answered by anyone in the system.”
He added the profession is struggling to attract enough newcomers to match the number of advisers exiting the sector, and “we need to create the next cohort of people that will put their hand up and aspire to become a fully-fledged adviser”.
“Why not bring people in at a reduced qualification and allow them to study, allow them to get paid while they’re studying and then allow them to move through to become fully-fledged advisers? Lawler said.
“[This could be] potentially creating the next generation of people that will buy financial planning businesses as some of our more senior advisers retire.”
Levy said her proposals around giving super funds more advice isn’t something that should scare advisers.
“I agree with Matt, it potentially [provides] a training and career path for people, but it may not for some people – they might be happy to be a lifetime customer service officer,” Levy said.
“I don’t think it has to be of itself a means of producing more financial advisers but I do anticipate that will be part of it.”
No return to the wild west
While there is fear that any pullback on regulatory safeguards may be a backward step for consumers, Abood and Lawler both maintained the advice industry wouldn’t return to the days of the wild west.
“There’s a sense by some that by repealing this regulation we’re going to end up in some kind of wild west where consumers don’t get anything in writing – that’s not the case at all,” Abood said.
Lawler agreed with Abood’s sentiment.
“What has been put in place is a high barrier to entry – a lot of these [laws] were put in place when there was a low barrier to entry, so you needed a tick-a-box,” Lawler said. “Now we’ve created a profession with a higher barrier to entry.”
The edit on the meeting in this article has sought to capture the most relevant points made by those in contribution and the outcomes gained in understanding.
The over-riding concern I hold is the scope of suitable advice – whether as a non-relevant provider or ‘customer service officer’ as Levy quotes – and Lawler’s quote ‘an individual’s advice needs are relatively simple, “we should be able to give them simple advice, quickly, efficiently and effectively” – then this poses the question of properly understood context within which the client finds themself, likely not knowing which questions to ask to gain a clear and relevant perspective to the current or future implications of non-relevant provider ‘advice’ from a Super fund across other areas of life, now or into the future.
Whilst Super funds in the context of what’s discussed by Levy and Lawler in this article suggest a potential training pathway for aspiring advisers, once they do become ‘relevant providers’, what is to then stop the Super fund vertically integrating the Advice model within their fund’s business model, thereby propogating the Advice business model shredded (and suitably so) by the Hayne Royal Commission which the banks had built their Wealth business upon?
When policy decisions are made on the basis of Utilitarian ethics models (such as Jones views are), rather than Virtue ethics models which gave rise to the Code of Ethics and legislation to enshrine consumer protections and punitive accountabilities for breach, then the only winner is a compromised cultural delivery model and a lowering of the service excellence for the client.
Thank you Matt for bringing to light what has been the obvious solution for the last few years.
I have been banging on and people have been subjected to my rants about the disconnect between a utopian vision and the real world, for a long time, in that it is one thing to drive thousands of experienced advisers out of the Industry due to them not having a theory based bit of paper and then magically expect tens of thousands of newly minted University qualified Advisers to step up to the plate, which clearly has not happened.
Most of the Advisers in the past came into the Industry from different fields and built up their qualifications as they progressed and this works well if the rules around what is allowed, IS CLEAR AND CONCISE.
Instead, what we got, was a growing library of Legal interpretation, increased risk, complexity, cost and stress that has made staying or becoming an Adviser a choice between being a current masochist, or a believer that the only true road to salvation, is constant beatings and threats of damnation to see the light.
Needless to say, the ratio of “exited to entry” Advisers, has led Australia to the current fiasco and I can tell you now that the belief that the only path to redemption is recruiting new Advisers via the University path, is NOT going to solve the issues.
I have been saying for years that the solution is to “encourage” new people, not discourage them, which is the current path, as it is seen to be too hard and not inclusive or flexible to allow exceptional new and older people to come into the Financial Planning world in a stepped out model that encourages and supports them.
What we have today, is an apartheid system that benefits a few to the detriment of the majority and what I mean by that, is the wealthy can afford a Financial Adviser, the rest of the population are in effect, excluded from the club.
It is even worse for the Advised Life Insurance sector, which requires a minimum 20,000 risk Advisers, though due to the insane education requirements, has driven most of the experienced risk Advisers out of the Industry and can anyone point out how many University degree qualified Graduates in the last 5 years, have elected to become a risk specialist?
Thousands gone / Nil to a handful entered?
The obvious solution is to allow entry level people into the Wealth protection Industry, which as we all know is the foundation of Financial Planning, train them up in risk only education topics and let them advise in just this field.
Then if they want to become a fully fledged Financial Planner, they can then do the ongoing studies to reach that goal.
The end result? A more inclusive Industry that will grow and provide much needed clarity and a reason for people to consider a career in our vital sector of the community, compared to the current regime of exclusivity and a blinkered approach that NEVER works.