QAR should be RCA
The AIOFP supports Minister Jones’ decision to seek a third – party expert opinion on Ms Levy’s QAR Report, regardless of how long that may take.
The Financial Services industry is a very complex and gordian environment, the next Ministerial direction is critical to consumer protection, industry structure and pricing going forward, the Minister must get it right.
The Minister has demonstrated a great deal of respect and courtesy towards Ms Levy from the outset by not commenting on any aspect until the final report is completed. It is time for Ms Levy and her supporters to demonstrate similar respect and reciprocation.
Time should not come into it, getting it right is the crucial factor.
Whatever the decision/direction the Minister recommends, there seems little doubt it will need to be at least a 2 – tiered systemic approach to cater for the diversity in the broader financial services landscape. One solution will never be enough, the ‘trillion dollar’ question however is which options will be selected.
At this point it appears there are three distinct market opinions –
- JAWG supporting QAR/LEVY in its entirety.
- AIOFP wanting a hybrid version to protect consumers/Advisers.
- CHOICE staunchly defending consumers as they should.
The QAR/Levy option of reducing consumer protection and giving back legal flexibility to the Institutions is flawed in our view. CHOICE are understandably all about consumer protection [which includes Advisers in this cohort] and we believe our solution of not compromising consumer protection but allowing all stakeholders to operate adequately and fairly within the system is feasible.
The AIOFP does not support the Levy solution for one key reason, it dilutes protection for consumers by allowing the Institutions to operate under a ‘Good Advice’ environment, not the more stringent ‘Best Interests’ duty.
The AIOFP supports CHOICE and its consumer protection comes first stance.
Recent history clearly demonstrates that most Institutions/Banks are not very good at wealth management or financial advice, if you need reminding of this fact just look at the Royal Commission outcomes including the ‘fee for no service’ fiasco and the 160 failed/frozen funds list over the past 20 years. Institutions should stay with what they do best in our view, but if they want to offer internal financial products to in house customers, we agree they do need a workable and simplistic solution.
But we should not ‘throw the baby out with the bath water’…..diluting a Best interests duty for consumers is counter intuitive to what all stakeholders should be upholding but often neglect – protecting consumers at all costs.
‘Good Advice’ is good for only one stakeholder and its certainly not consumers, we don’t want to return to the bad old days of Institutions masquerading as ‘independent’ advisers confusing consumers.
If Institutions want to offer their products to the general market the product must stand up on its own merits of price/performance and structure. We cannot go back to the bad conflicted days of aligned Advisers selling inferior product to consumers.
We think the sensible solution for all stakeholders is to divide the entire Financial Services industry into broad 2 sectors – Independent Advice and Product Manufacturing – a concept similar to what the UK did in 1987 with ‘polarisation’ but tweaked to suit our industry’s needs today.
Product manufacturers should be permitted to have internally trained ‘factual information staff’ enjoying legislative carve out from the best interest duty to give information [not advice] to in house clients. This cohort should be classified under Product Manufacturing.
Independent Advisers must comply with the full extent of the law including acting in the best interests of consumers naturally under the Independent Advice category.
This scenario eliminates the dangerous outcome of having two classes of Financial Advisers – Independent professionals operating under a best interest’s duty and a cohort of conflicted salespeople ‘flogging product’ and confusing consumers with a ‘good advice’ effigy.
The cumbersome, expensive and unwieldy compliance regime can then be immediately rationalised to dramatically reduce the cost of advice for Advisers and ultimately consumers, this can be achieved in literally an afternoon with a small panel of pragmatically thinking stakeholders. The current preposterous landscape of duplication and absurdity has been front of mind to most for at least 5 years, we all know what needs to be done.
Furthermore, we believe Accountants should also have ‘carve out’ to offer SMSF’s structural advice only to clients under ‘Product Manufacturing’ but must be licensed to offer specific asset allocation.
Section 923A of the Corporations Law, the definition of Independence for Advisers then needs to be modernised to suit the post FOFA era.
A category under Independent Advice should be Risk Advisers to save the Life Insurance industry from LIF/FASEA related failure. This category of Advisers should have a risk orientated exam format and a Diploma level education standard to reflect the lesser academic demands of the sector.
Importantly, Superannuation Funds and their members will greatly benefit from this proposed environment.
If a Super Fund only has to employ trained staff under Product Manufacturing to give intrafund advice, the prohibitive cost of employing multiple Financial Advisers, compliance infrastructure and AFSL risk for trustees are greatly mitigated. The most efficient Advice strategy is to out – source the service to the Independent Sector on a fee for service basis alleviating the dubious ‘fee for no service’ optics of all members funding a service that only less than 10% utilise.
It is rather ironic that some Super Funds who have been critical of the highly conflicted Banking vertical integration models of the past are now duplicating and delivering this highly expensive business model to their members at considerable cost.
In closing we also wish to point out that the quality of Advice for consumers from the independent Advice sector has been generally excellent for many years, this is comprehensively backed up by the Royal Commission findings, ASIC’s own survey and the latest AFCA complaint numbers.
The QAR concept is ineffectively and inappropriately designated in our view, it should have been termed the Reducing the Cost of Advice [RCA] Review.
Regards
PETER JOHNSTON – AIOFP EXECUTIVE DIRECTOR
