Laws around financial product advice are the wrong way around and should change to focus on what consumers want rather than what financial planners need to do, says Michelle Levy, chair of the Quality of Advice review.
During a Q&A session at the FPA Professionals Congress with CEO of the FPA, Sarah Abood, Ms Levy said that the regulation of financial advice is one of the most complained about areas she has come across.
“It is clear that the law is too inflexible and we need to make it easier to apply. Current regulation focuses on disclosure, the processes that planners must follow, who can and can’t provide advice, rather than what consumers need. It’s then a case of hoping that the advice is good and that clients understand it.
“While the feedback I’ve received during the consultation process hasn’t come as a surprise to me, what I have particularly noticed is the passion within the financial planning profession, and how personal it is for financial planners. This is an issue that they really want to solve, and I want to help solve it. I’ve become passionate about the profession of financial planning as well.”
Ms Levy said that her focus in the review is on quality, affordability and accessibility.
“One of my main priorities is balancing advice and services which are fit for purpose to ensure good advice outcomes for clients.
“My concern isn’t about the advice being provided by financial planners but rather when people speak with their financial institution and get unhelpful general advice. My view is that more advice conversations should be treated as personal advice conversations, and this view hasn’t changed during this process.
“However following the feedback from those in the financial services industry, I won’t be proceeding with the original recommendation on general advice to move it out of the regulated regime. It will still exist, but it will be in a much smaller area – it will be to do with seminars and newsletters and the like.
“There is a place for general advice, but it is not in personal interactions with customers and clients.
“However rather than focus on “personal” or “general” advice, I’m thinking more about advice that is “fit for purpose” and adjusts to whatever it is that people are seeking advice on.
Ms Abood said the FPA has been encouraged that Ms Levy has taken the approach of putting ideas into the public domain for discussion.
“This structure has been really sound and has generated lots of useful feedback.
“Probably the most contentious proposal amongst advisers has been the idea that product issuers would be able to provide simple personal advice in some circumstances. It has been encouraging to hear Michelle acknowledge this concern, and the concerns of financial planners, and seek to address it in the review.”
“The main concern of FPA members is that the advice given via product issuers might not be quality advice and that consumers won’t draw a distinction between that advice and personal advice given by a qualified and registered financial planner.
Ms Levy acknowledged the concerns of financial planners that people won’t understand the difference between types of advice, but said the review is looking at ways to address this.
Ms Levy said, “The reality is that not all advice should, or can, be given by a professional financial adviser. There will never be enough advisers in Australia to give all the advice needed on a day to day basis.
“It’s also important to keep in mind that not all advice is difficult. There is a place for financial institutions – such as banks or super funds or insurance companies – to help people with some aspects of their financial needs. I also believe that technology, and digital advice, will be an enormous benefit to the provision of financial advice, without replacing the importance of professional financial planners.
“My challenge is to encourage financial institutions to provide that advice safely. I want to make it clear that the obligation for that advice will sit with the licensee, not the individual on the other end of the phone.”
On the Life Insurance Framework, Ms Levy said that her thinking has developed over the course of the review.
“When I came into the review, I was not a fan of commissions on life insurance, and I continue to have reservations. I believe it introduces conflict into the relationship between financial planners and their clients, which should be built on confidence and trust.
“However, I have been persuaded that it is better to have more people with life insurance, and some paying a commission, than not. I am aware that there are already not enough Australians with adequate life insurance.”
The FPA Professionals Congress session is Ms Levy’s last public presentation prior to completing her Quality of Advice Review.