DEJA VU – s923A and GOOD ADVICE.
History certainly repeats itself within the Financial Services landscape, but this is a dangerous precedent that should be avoided.
Let’s put aside the flaws in the s923A Legislation for a moment and look at how the current push by the Institutional lobby to eliminate the Best Interests duty in favour of a Good Advice concept has chilling similarities to the original intention and devastation of the s923A legislation in 1997.
Some relevant history – The 1990’s was the decade when the major Institutions became very serious about entering Wealth Management and Financial Advice. The high margins in Wealth easily funded the vertical integration Advice model and the Institutions targeted the FPA/AFA to ‘divide and rule’ the Advice community in Canberra. AMP Executive Steve Helmich become the Chair of the FPA and most FPA CEO’s since have been from an Institutional background. The AFA was similarly culturally placed.
During the 1990’s the percentage of Financial Advisers aligned to the Institutions were well over 70% of the total advice community, something the Institutions did not want publicly exposed. To ensure institutionally aligned Advisers did not get ‘discriminated’ against by consumers for their conflicts, the Institutional lobby campaigned to get the very restrictive parameters of s923A legislation in place.
Until FOFA changes in 2012, product commission was the most prevalent way for Advisers to get paid for dispensing advice to consumers. With s923A stipulating that the term ‘independent’ can only be used if no commission was received by the Adviser, it literally precluded over 99% of the Advice community from using the term – essentially making ALL Advisers to look the same to the eyes of consumers.
This was further exacerbated by ASIC allowing the institutionally aligned practices to operate under ‘independently’ sounding names. The attached ‘WHO OWNS WHO’ document will bring back many memories of the torment independently owned Advisers went through over 20 years ago.
It was this gross manipulation of the law and no Canberra representation of independently owned Advisers that brought the AIOFP into the market in 1998, we essentially gave independently owned Advisers the opportunity to differentiate themselves and have Canberra advocacy.
Relevance today – Fast forward to today and the Institutional lobby [FSC/FAAA] are trying to get the Best Interests Duty replaced with a Good Advice concept that allows Institution’s to operate their conflicted business models in a diluted legal environment and critically, it will make all Advisers ‘look the same’ under the law.
This is not a favourable outcome for consumers on both fronts.
Once the parameters of a Good Advice concept are known it may then be appropriate to be applied to the Minister’s preferred model of internal staff dispensing product information to consumers in a compromised environment.
We believe independent/independently owned Advisers should operate under a Best Interest Duty to protect Consumers from market conflicts and allow these Advisers to professionally differentiate themselves for consumer choice and consideration.
We also believe todays more educated Consumer will appreciate the advantages of dealing with an Adviser bound by a best interest’s duty.