The outstanding problem in financial advice is that you can’t get “a bit of advice”. To deal with your case, an adviser must provide you with a comprehensive 100-page Statement Of Advice (SOA) which makes the transaction prohibitively expensive.
Over-regulation such as the SOA rule is a good example of what happens when regulation goes off the rails.
The primary objective of Michelle Levy’s Quality of Advice review is to make advice cheaper and more accessible.
The report is a blueprint for a much better system which will create new risks but, on balance, they are risks worth taking.
Putting aside the uphill battle such an ambitious blueprint would face politically – it’s a Morrison-era plan for deregulation put before an interventionist Labor government – hopefully Minister Stephen Jones will at least introduce some of the better ideas.
Routine reliable advice should be available inside the system at a reasonable cost but these days the bill comes to more than $3000 a year on average. Digital advice might change this, but the cost reductions can’t come soon enough.
The reality of the advice industry is that not every customer is planning to become a millionaire. Instead, most Australians need occasional advice on inheritance or retirement, or digging themselves out of debt.
Meanwhile, the sector is literally shrinking to the point where increasingly it will only be accessed by the wealthiest Australians.
If the government takes one recommendation from the report it should be to remove the notorious SOA, which would be dropped in favour of more limited record keeping by advisers.
There is also the suggestion that the “best interests” duty gets switched to a so-called “good advice” duty in order to open up the provision of services. Under this change, the adviser would offer advice that is “reasonably likely to benefit the client”.
This is perhaps the riskiest item of all because it could be a softening of the current safeguards. Consumer groups will not like it one bit, but Levy believes it can be regulated in a way that would be as effective as the existing system.
The obvious risk is that “good advice” will allow banks and super fund personnel to return to the industry and they will again mistake “advice” for “sales”.
At the very least there is a risk they will be more focused on retaining the customer than losing them.
But once again anything here that offers appropriate advice more cheaply is a risk worth taking.
What’s more, it’s not like the current regime has eliminated dodgy advice. Though, to be fair, many of the worst advice scandals are not related to qualified advisers but those who pose as professionals.
Should we put the system at risk again after the shocking revelations at the Hayne royal commission in 2017? The short answer is yes.
The disclosure principles which have guided financial advice regulation for decades are an utter failure because people do not read – and could not be expected to read – the extensive legal documentation the current system demands.
Industry super funds, which are already enjoying a golden age, will relish sections of this report. Under the plan they could offer wider advice than the current narrow terms available to them. The first funds to do this would have a competitive edge.
Similarly industry funds will be glad the notion of collectively charging all members a flat advice fee – whether they use it not – has been accepted.
The report in its entirety is probably too ambitious for this “no surprises” government. But hopefully the recommendations it may eventually cherry pick will actually cut prices while improving access to appropriate advice.
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