Earlier this month, the Federal Court found that two advisers from financial planning firm NSG Services had breached the Corporations Act by failing to comply with the best interests obligation when providing advice to clients. As a result, the two offending advisers were banned.
Although welcome, the ruling the Australian Securities and Investments Commission (ASIC) won against NSG relates to advice given in 2015, with court proceedings beginning only last year, which raises the question: Is the current system of redress quick enough? Can consumers ensure they are getting the best financial advice, and that their interests are being looked after, in real time?
Over the last few years, there have been some positive steps towards holding the advice industry to account on the path to professionalism and higher standards. The best-interests obligation, introduced in 2013, underlined Australia’s world-leading commitment to consumer protection in financial advice. Only now are countries such as the US considering introducing similar legislation, based largely on Australian law.
More recently, the Corporations Amendment last year established a more stringent framework for educational and professional standards within the financial planning profession. Higher standards will inevitably lead to better advice; when the UK passed its Future of Financial Advice (FoFA) equivalent, the Retail Distribution Review, 20 per cent to 30 per cent of advisers did not qualify and had to leave the market.
Yet advisers in Australia have until January 2024 to get a tertiary degree equivalent, meaning consumers may still be at greater risk of receiving bad advice from ‘rogue’ advisers in the intervening years. How can consumer protection be strengthened, and sped up, in the interim?
I believe there are two key steps to protecting consumers.
The first is transparency. There have been positive changes on this front over the last few years, such as the ability to search decisions made by the Financial Ombudsman Service when they have adjudicated on client complaints about financial service providers. But the entities involved in these decisions are kept anonymous, even when the providers are found to have been in the wrong. This means consumers may understand certain risks and their repercussions, but they will not know specific advisers or institutions to avoid.
When those receiving financial advice are unlikely to meet other clients of their adviser, it can be almost impossible to find out if other customers are happy with the service. If clients are aware that other customers are happy, it’s a win-win. Customers feel secure and reassured. Advisers will gain the ability to call on a greater number of positive testimonials to market themselves more effectively. At worst, greater transparency will mean underperforming advisers will be able to understand and address areas of weakness, and have a compelling and positive reason to do so.
The second key step for stronger consumer protection is more accountability. This goes hand-in-hand with transparency. When the ASIC mechanism for redress took more than a year for a result, how can the industry ensure poor advice is held to account? There are few ‘bad apples’ out there, but, when decisions such as the NSG case result in the outsized media impact that followed the case, it’s easy for consumers to believe the problems are bigger than the reality. The trick is having a clear, easy-to-understand mechanism that is accessible and fair, to both consumers and advisers. Accountability, like transparency, will enable the vast majority of advisers – who act in their clients’ best interests – to prove that they do, whilst the few that don’t will be exposed.
The industry is clearly moving in the right direction. Improving transparency and accountability will reassure consumers and help the industry improve even more quickly.
Angus Woods is managing director of Adviser Ratings.
TOPICS: accountability?, Australian Prudential Regulation Authority, consumer protection, Corporations Amendment, Future of Financial Advice, NSG Services, transparency