There are mixed views on whether proposed changes to financial advice regulations will benefit you or the industry.
Proposed changes have been welcomed by the financial services industry as a way of cutting through red tape. But some consumer advocates say they are potentially disastrous.
The changes are outlined in Quality of Advice Review – Proposals for Reform, released by the Treasury and prepared by superannuation law expert Michelle Levy. She is leading a review of financial advice industry regulations after “mountainous red tape” pushed consumer fees up by 30 per cent in two years and sparked an exodus of more than 10,000 advisers.
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But the cost of cutting through that red tape, according to Alan Kirkland, chief executive of consumer advocate CHOICE, will be the winding back of years of hard-won reforms that protect consumers.
“It’s astonishing, the degree of weakening of consumer protection this review has recommended,” Mr Kirkland 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.”
The biggest concern, he said, was the proposal to remove the ‘best interest’ duty for financial advisers. Under a heading of ‘How should personal advice be regulated?’, the paper states: “The obligation to provide ‘good advice’ would replace the best interests duty, the appropriate advice duty, the duty to warn the client and the duty of priority in Chapter 7 of the Corporations Act.”
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Ms Levy’s proposal says: “What is good advice can and should be measured objectively in light of all of the relevant circumstances at the time the advice is given.”
The paper does provide a definition of how ‘good’ can be measured objectively, stating: “‘Good advice’ is advice that would be reasonably likely to benefit the client, having regard to the information.”
Ms Levy says she is “surprised” at the fervent opposition to her plan from consumer advocates.
“These proposals are here to help consumers, not advisers or institutions,” she says.
“What is it that consumers want? They want good advice. That’s why I’m proposing we regulate the content or output of advice, [instead of] disclosure and conduct [of advisers].”
Mr Kirkland believes ‘good’ advice is where customers could lose out. “You could be in a 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.”
On the other hand, Jessica Irvine, money writer for The Sydney Morning Herald and The Age, suggests the proposal will open the way for advice to be provided at much cheaper rates.
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“Being able to access affordable assistance to help you navigate your financial life should be a right that all Australians enjoy – akin to accessing healthcare. And you shouldn’t have to break the bank to get it,” she said.
CHOICE, though, believes the issue of affordability can be achieved without compromising consumer protections. In its submission to the review, it recommends that affordability be addressed by Australia replicating the UK’s Money and Pensions Service, which provides a taxpayer-funded phone service that all citizens can call to help build their financial capability.
Public responses to the consultation will be accepted until 23 September 2022, with interested parties invited to comment. A report will be provided to the government by 16 December 2022.
What do you think of the proposed changes? Have you found it hard to get basic financial advice for a reasonable price? Why not share your thoughts in the comments section below?
Financial literacy should be part of the school curriculum from year 7 onwards. They should “role play” scenarios so they understand the effect of investing and time in the market.