The Coalition left office trying to do something it desperately wanted to when it entered office in 2013, yet failed to: repeal Labor’s Future of Financial Advice (FOFA) reforms.
In a review announced by then superannuation minister Jane Hume as the election loomed, the then government announced a review to “ensure Australians have access to high quality, affordable financial advice”, which would examine “opportunities to streamline and simplify regulatory compliance”, “improve the clarity and availability of documents provided to consumers”, and check any “unintended consequences” of the regulatory framework.
Hume claimed the review was implementing one of Kenneth Hayne’s banking royal commission recommendations, for a review of “the effectiveness of measures that have been implemented by the government, regulators and financial services entities to improve the quality of financial advice”.
You’ll notice the Hayne recommendation was about the quality of advice, but the Coalition wanted it to be about affordability.
The government appointed top-flight financial services lawyer Michelle Levy of Allens, which counts Westpac and AMP among its clients. Even before she commenced the review, Levy declared she was sympathetic to financial advisers.
Levy’s review has now emerged and it is clear the Coalition’s real agenda was getting rid of FOFA — just as it tried to do when first elected. Levy says in her review there must be “substantial changes” to make advice more affordable (that word again): “It is clear the current regulatory framework is a significant impediment to consumers accessing financial advice.”
Levy dismisses the view that changes might weaken consumer protections: “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.”
You wouldn’t guess that the long, horrendous history of financial advice in Australia has been of poor, self-interested advice from gouging advisers backed by large financial institutions with their own profits, not the client’s best interests, at heart.
Levy thinks an obligation to give “good advice” — in place of the existing duty for advisers to act in their clients’ best interests — would be sufficient protection, rather than process-based rules around demonstrating compliance with consumer law, ignoring that such process obligations have been put in place because advisers and the financial institutions backing them repeatedly showed they couldn’t be trusted to act with the consumers’ interests in mind.
The timing of Levy’s review is handy though because it comes just a week after ASIC gave us a reminder of the costs resulting from decades of poor advice, gouging and outright fraud by financial planners and major financial institutions, exposed by the Hayne royal commission.
Up to June 30, a total of nearly $3.6 billion in compensation has been paid out by AMP, ANZ, CBA, Macquarie, NAB (the worst, with $1.24 billion) and Westpac. The firms paid or offered $438 million just from January 1 to June 30.
More than 1.4 million people, or more than 5% of the entire population, have received or been offered compensation for fees for no service or non-compliant advice.
There’s no evidence from the review that Levy spoke to any of those people. But financial advisers got plenty of opportunity for consultation. “Members of the review secretariat have undertaken site visits of advisers’ offices and we have undertaken a survey of advisers,” Levy reports. “3326 advisers have responded to the survey.”
Levy is continuing her work on life insurance and general insurance commissions. We shouldn’t forget all the insurance businesses at the royal commission had problems exposed to varying degrees — AMP, Freedom, and the insurance arms of the four major banks. It was only this month that ASIC announced it had forced Freedom Insurance to cough up $102 million in compensation for more than 80,000 customers.
One would hope that Levy will also speak to a few of the 80,000 people who were ripped off before she issues calls for “substantial changes” to consumer protections on insurance.
