Proposed financial advice overhaul welcomed by industry, slammed by consumer advocates

Proposed financial advice overhaul welcomed by industry, slammed by consumer advocates

August 30, 2022

An overhaul of financial advice regulations proposed by a government inquiry has been widely welcomed by the industry for attempting to reduce red tape, but consumer advocates have warned the changes would be an “absolute disaster” if implemented.

After several months of consultation and submissions from stakeholders, lawyer Michelle Levy, who is leading Treasury’s review into the quality and affordability of financial advice, released a proposals paper on Monday which outlines the changes she is considering.

Michelle Levy is leading a Treasury review into the affordability, accessibility and quality of financial advice in Australia. Credit:Steven Siewert

One of the major changes suggested by Levy is a proposal to create an obligation for financial advisers to provide “good advice”, which would replace four current obligations, including the best-interest duty.

She said this would focus attention on the consumer and the quality of the advice, rather than the provider and the process for formulating the advice.

“Consumers want good advice – not documents and processes. And advice can be more easily measured and assessed than conduct,” she said. “By focusing on the quality of the advice given, the law does not need to regulate or prescribe the inputs.”

She said this would make it easier for banks, insurers and superannuation fund trustees to give simple advice to their customers.

Under the proposed changes, fund trustees would be able to provide personal advice to their members about their interests in the fund during retirement, and they would have discretion about how they charge for the advice. These are changes the industry has been calling for.

The proposals paper was welcomed by the Financial Services Council, as well as 12 industry groups – including the Association of Financial Advisers and Financial Planning Association – collaborating as part of a working group to respond to the inquiry.

“The consultation paper outlines a sensible road map for delivering affordable and accessible financial advice by focusing on outcomes for consumers, not out-dated compliance documents and red tape,” said FSC chief executive Blake Briggs. “The review has listened to stakeholders and got the balance right.”

However, Alan Kirkland, chief executive of consumer advocate Choice, said, if implemented, the changes would wind back years of hard-won reforms that protect consumers.

“It’s astonishing, the degree of weakening of consumer protection this review has recommended,” he said. “This would undo over a decade of reforms in financial advice designed to stop people losing their superannuation savings, and it would be an absolute disaster if these were implemented.”

Kirkland said the biggest concern was the proposal to remove the best-interest duty for financial advisers.

“The review says it should be enough if they give you good advice that’s likely to put you in a better position. That’s a really low bar, particularly given advisers can still receive fees to encourage them to preference some products over others,” he said.

“You could be in terribly performing super fund and an adviser could recommend you move to slightly better one that’s still a terrible fund … but being put in slightly better position could tick the box”.

Financial Counselling Australia chief executive Fiona Guthrie said the changes would take the profession “back to the bad old days”, while Consumer Action Law Centre head Gerard Brody said they should not be walking back important principles established during the Hayne royal commission.

Levy acknowledged that some stakeholders could be concerned that the proposals would “retract hard fought changes intended to protect consumers”.

“I do not hold that view,” she said. “The proposals are intended to make it easier for consumers to get personal advice. Therefore, they are also intended to make it easier for providers of financial advice – financial advisers, product issuers and digital advice providers – to provide personal advice.

“In my view, this greater ease is achieved without introducing a corresponding risk of harm to consumers, who will be protected by a proposed new obligation to give good advice and by the many existing consumer protection provisions in the law.”

Financial advice was one of the biggest problem areas for banks during the 2018 banking royal commission, which underlined how many customers had paid for advice that was never provided.

“The industry has moved from scandal to scandal, causing financial harm to clients, and damaging public confidence in the value of financial advice. This cannot continue,” commissioner Kenneth Hayne said in his final report.

The Australian Securities and Investments Commission last week said that as at June 30, AMP, ANZ, CBA, Macquarie, NAB and Westpac had paid or offered a total of $3.6 billion in compensation to customers as a result of the “fees for no service” scandal, or because of non-compliant advice.

The review, which was recommended by the Hayne royal commission, is due to report to government by December.

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