“Banks are likely to use ‘free’ advice as a loss leader to attract potential clients into their ecosystem.”
Hayne’s royal commission criticized the practice of financial institutions cross-selling their own managed funds or insurance products under the guise of financial advice, and its removal was a key driver of the introduction of the fiduciary best interest duty.
The concept of “good advice” could be particularly tricky when assessing the environmental, social and governance merits of a particular investment, said Dr. Humphery-Jenner. Her comments come amid debate among retirement trustees since Treasurer Jim Chalmers asked them to support social and environmental causes last week.
But Dr. Humphery-Jenner said he agreed with the premise that “financial advice rules can be unnecessarily complex” and that “the sheer amount of regulation adds costs.” He also noted Ms Levy’s warning that it may be appropriate for the best interests duty to remain in place for some forms of complex advice, or where a fee was paid.
The document outlined 12 proposals reviewing 20 years of legislative reforms and concluding that the regulation had created a “significant impediment” to ordinary workers receiving advice.
Its centerpiece was to replace existing obligations, including the duty to act in the best interests of clients that was introduced by Labor in 2012, with a general duty to “give good advice.”
The move was criticized by consumer groups and financial advisers in a joint statement. “We have serious concerns,” said Choice CEO Alan Kirkland. “If the government eliminates the duty of the best interest, as proposed in this report, we will return to the bad times.
“The review’s proposals to weaken consumer protections will fuel a resurgence of vertical integration, making it easier for big banks and superfunds to use their data to sell products to existing customers.”
Financial Counseling Australia chief executive Fiona Guthrie said the best interest duty was “the only bulwark” consumers had against bad advice, while Gerard Brody of the Consumer Action Law Center said Australia “should not go back” in the principles of consumer protection.
‘Reduce costs for consumers’
But industry representatives said encouraging new forms of affordable, digital advice would have widespread benefits for consumers, of whom only 10 percent currently receive professional advice.
“Encouraging more financial advice providers to come to market is what will reduce costs for consumers,” said Financial Services Council chief executive Blake Briggs. “The industry should welcome a regulatory framework that encourages all participants to provide good quality advice.”
The FSC has been one of the loudest advocates for cutting regulatory bureaucracy and increasing consumer access to advice. It is understood that only a handful of its members – retail fund managers, super funds and life insurers – still provide advice to consumers from the royal commission.
The big four retail banks have closed or sold most of their financial advisory operations since 2018 as part of their broader exit from the wealth management sector.
But Commonwealth Bank chief executive Matt Comyn has indicated Australia’s largest bank would be open to providing forms of digital advice if regulations were relaxed, telling the Australian Financial Review Banking Summit in May that Australia ” regret” the reform of the patrimonial sector.
Renato Mota, CEO of Insignia Financial, Australia’s largest provider of financial advice, said: “[We are] strongly supports the view that ‘consumers want good advice, not documents and processes'”.
AMP Counseling Director Matt Lawler said he was encouraged by proposals to simplify counseling processes and use technology to provide counseling to more people.
“The consultation document acknowledges what we and many in the financial advisory profession have been saying for some time – that over-regulation has had a severe impact on the ability of advisors and licensees to provide an accessible and affordable service to Australians,” he said. .
Financial advisers were divided on the proposal, with many celebrating the removal of red tape on social media, while others worried that a return to harmful practices could damage the sector’s still-shaky reputation.
‘The basis of consumer protection’
Director of the Association of Independently Owned Financial Professionals Peter Johnston, which lobbies on behalf of small business wealth firms not aligned with banks or fund managers, said product providers should not be encouraged to provide advice. .
“[The proposals are] not in the best interest of consumers and create a path for institutions to re-enter the market with conflicting digital and/or vertically integrated advice,” Mr. Johnston wrote to members on Monday.
He criticized the conclusion that superfunds should be able to provide advice to members paid for group membership, arguing that this was akin to charging “fees for no service”.
Artemis Financial Services director Phillipa Hunt, a trained psychologist, said the proposals would also improve the mental health of some professionals.
A survey by Ms Hunt and business broker Steve Prendeville this year found widespread mental health problems among their peers in the counseling sector.
“The stress created by this level of garbage compliance caused companies to hire staff just to look for customer forms and signatures,” said Ms. Hunt.
Ashurst’s partner, Hong-Viet Nguyen, a specialist in financial regulation, said a duty of “good advice” could have benefits in theory. “If designed properly, [it] it should reduce the regulatory costs of financial advisers and help reduce the cost of financial advice for consumers,” said Ms. Nguyen. “However, with any reform, the devil will be in the details.”
If removed, it could create regulatory inconsistency, as mortgage brokers became subject to a best interest duty after the actual commission, he added.
Regulatory consultant Brett Walker, a former investigator for ASIC’s predecessor, the Australian Securities Commission, said removing the best interest duty would be “too high a price” for affordable financial advice.
“The best interests are the foundation of consumer protection,” Walker said. “By all means remove the grab bag of best interest requirements under the safe harbor…But let the best interest duty be the test of quality advice.”
‘Safe, compatible and affordable’
Craig Keary, Asia-Pacific head of digital advice provider Ignition Advice, said he was “confident” that software-enabled advice provided by financial institutions could be “secure, compliant and affordable” for consumers.
“We have argued that financial institutions, including superfunds, are logical and reliable entities to provide retirement advice to their members, especially given the complexity of the retirement system,” said Mr. Keary.
Mercer partner Tim Jenkins, who wrote the Actuaries Institute’s presentation to the Levy Review, said bolstering “in-fund advice” through superfunds would be in members’ best interests.
“The funds will be able to provide information and guidance in a cost-effective and accessible way without the burden of existing personal counseling legislation,” he said.
Financial Services Minister Stephen Jones said financial advice regulations as they stood “didn’t suit anyone” but that any changes were needed to “get the right balance” between cutting red tape and protecting the consumer.
The Treasury will consult on the proposals until September 23. The Levy Review is due to issue its final recommendations on December 16.