For advisers concerned about the current compliance burden, some statements and proposals already put forward as part of the Quality of Advice Review may make for interesting reading.
First, we note that there is recognition that too many Aussies are being priced out of over-regulated advice.
At Adviser Ratings, our research has consistently pointed to a disconnect between what advisers are charging and what consumers are willing to pay. While the median advice fee has surged beyond $3500 amid rising compliance costs, most Australians told us they would pay less than $500 a year for advice, our consumer survey showed.
In a webinar, independent reviewer Michelle Levy linked this growing problem to the weight of regulation.
“If financial advice is going to be widely accessible and truly affordable, it’s clear that the current regulatory framework is a significant impediment [to] consumers accessing financial advice,” she said.
“It’s preventing advisers and institutions from providing advice and assistance to their customers, even where they’re asking for that advice and assistance.”
As part of the review, several plans have been put forward to address this situation, some of which could greatly change the day-to-day operations of advisers. Recently, we looked at the pitch to retire the Statement of Advice (SoA), a plan that has attracted support from a broad cross-section of advisers. Here’s a quick look at some other proposals.
1. Best-interests duty may become a thing of the past.
In a bid to reduce the regulatory burden, the financial advice review is considering replacing Chapter Seven best-interests obligations with a legal duty to provide “good advice”.
“I do not think it is necessary, nor even desirable, that a best-interests duty apply in every instance where a person provides personal advice,” Ms Levy said in the consultation paper for proposals.
“Good advice” has been defined in the paper as “advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided”.
However, the paper stressed that certain advice should still be covered under best-interests duty and consumers should have the option to choose an adviser who practises under the Chapter Seven duty if they wish.
Figure 1 – Proposal to streamline adviser obligations
Source: Quality of Advice Review consultation paper – proposals for reform.
2. Fee disclosure, in its current form, could go
Instead of producing an annual fee disclosure statement, advisers could instead be required to send their clients a consent form, if the consultation paper’s fee proposal is implemented.
Again, the idea here is to cut down on duplication, the paper stated.
“The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the course of the upcoming 12 months,” it read.
“Where advice fees are deducted from more than one product, a single consent form should cover each of the products issued by a product issuer.”
3. General advice regulation may change.
From a consumer perspective, the review has already found there is some confusion about the difference between ‘general advice’ and ‘personal advice’.
As such, the paper proposed removing the current regulation of general advice.
“In my view, general advice should no longer be a financial service,” Ms Levy wrote in the paper.
She noted consumer protections would remain, due to the wording of Division 2 of Part 2 of the ASIC Act, which captures conduct connected to a financial service.
4. Advisers may have more flexibility in how they give information to clients.
While the paper noted Financial Services Guides (FSG) are easier to issue than SoAs, the need to make sure they are up to date does add to advisers’ compliance burden, it stated.
One proposal would give advisers the choice to provide clients with an FSG or contain information about remuneration, internal dispute resolution and the Australian Financial Complaints Authority on their website.
It is worth stressing again that, at this stage, these are just proposals. Treasury is now asking for comments on the ideas put forward in the paper, with the final report expected before the end of the year.
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Comments8
"I will just be happy if my advice SoA/documents can be written by me and not some compliance person in my licensee who has never sat in front of a real client "
Mel 09:44 on 22 Sep 22
"This is not the second tranche of the ISF take over. This is the end game. The potential nail in our coffin dressed up as the light at the end of the tunnel. There is only one reason anyone in the government will suggest a complete 180 on our mistreatment....IT SUITS THE AGENDA OF SOMEONE WITH A LOT OF MONEY TO "DONATE""
Sceptre 16:58 on 21 Sep 22
"I left the industry more than 5 years ago in the midst of this madness and have been working in the background through research, post-grad studies and university advocacy and advisory in an attempt to make sense of what has transpired. It IS SURELY CLEAR BY NOW, that FASEA doesn't make sense. It is VAGUE, UNCLEAR, FULL OF conflict and not in line with other professional code of conduct rules (accounting and legal) WHY? why is this industry completely unable to appropriately regulate and discern bad actors from good ones and treat them accordingly? It is truly disturbing to see the goodwill and trust of this once admired profession be decimated by either complete incompetence or blatant deceit. Not to mention how heartbreaking it is to hear of the relentless persecution of honourable advisers who dedicate their lives to helping others. I want to know WHY? HOW is it LEGAL? When will all these wrongs be righted?"
Angela Muzzin 15:49 on 21 Sep 22
"I only have one problem with the Adviser code of ethics...It was not designed by the profession, for the profession...If you expect professionals to truly buy into a prescribed set of ethical obligations, then let them write it. Not one other profession has been treated like little children like we have in financial planning...its insulting...every other profession has developed their own code within there own ranks. The FPA and AFA should consult with industry./professional elites, practitioners who can really represent the horde and re-design from scratch."
Phil 15:25 on 21 Sep 22
"I 100% agree with Gav. You are presenting mis-leading statements here abut BID being repealed. Advisers will still be subject to FASEA Code Of Ethics where BID is enshrined. Just check FASEA Standards 2, 3 & 6"
Richie Parsons 14:50 on 21 Sep 22
" TIme to 'bell the cat" The end game is to eliminate Industry fund advisers from their responsibility to provide independent non conflicted advice, thereby enabling industry funds to retain member funds in a post reirement scenario. The nonsense b ut much vaunted Retirement Income Covenant and its purported '"eureka" qualities viz 'a higher income in retirement for life' is the second tranche of the ISF takeover "
maxwell lewis 14:43 on 21 Sep 22
"lets hope that some common sense is at long last applied to the industry it would be a nice change "
Rod m 14:23 on 21 Sep 22
"The Best Interest duty obligation is enshrined in the Financial Planners and Advisers Code of Ethics. The code of ethics holds advisers to a higher standard than the law, Any adviser who expects the Best interest duty to dissappear in favour of "good advise" is misreading what Michelle is putting forward. Michelle has state she wants to see a Principles Based regulation - this is what the Code of Ethics is. Michelle wants to see more Australians able to access (good) advice...this is the standard that intra-fund advice will have to adhere to with their unqualified call centre jockeys..."
Gav 14:22 on 21 Sep 22