Consumer groups have called recommendations in Treasury’s new Quality of Advice Review released this week a “recipe for another [banking] royal commission”.
The report, chaired by lawyer Michelle Levy, calls for “radical changes that … will expose consumers to unacceptable risk when obtaining financial advice from a bank or super fund,” CEO of consumer group Choice, Alan Kirkland, said.
However, Ms Levy told The New Daily her recommendations would “make it easier for people to get advice” and that the current system caused too many to get “poor quality advice because people can’t get answers to their questions”.
The most contentious area of the report is the call to allow staff of banks, super funds and insurance companies to give personal advice to clients without having to ensure that advice would be in the customer’s best interest.
The current best interest test was introduced after the banking royal commission in 2018 found customers were being put into inappropriate and costly products by advisers receiving sales commissions.
Instead a “good advice” rule would apply with the responsibility for the advice resting with the employing institution rather than the individual giving it.
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“The biggest scandals in financial advice have involved large banks and super funds, yet they will be the greatest beneficiaries of the recommendations in this report,” Mr Kirkland said.
That claim rests on the report’s proposal to give bank and super fund staff the ability to offer personal advice to customers without being qualified financial advisers.
Currently those staff can only give general advice – generally details of products and options – which doesn’t take account of the specific needs of the customers.
“They will be able to undercut independent professional advisers by pushing out cheap and shoddy advice on a mass scale, provided by unqualified staff,” Mr Kirkland said.
However, Ms Levy said the extension of the right to give specific advice to financial institution staff will enable far more people to get simple financial advice that will enable them to better their situations.
Currently, she said, people with simple questions that could be answered by skilled employees are not being helped “because the industry view is that it’s too hard to comply with current obligations”. As a result they only offer general advice in these situations.
Banks and super funds will not be able to undercut financial advisers because they will not be wanting staff to give out expensive, detailed information to customers, Ms Levy said.
“They’re not going to want to put a whole lot of cost into their business by giving detailed advice they are not being paid for. The advice they will give will be limited and simple,” she said.
Report makes sense
Alex Dunnin, director of research group Rainmaker, described the report recommendations as “good and measured”.
The introduction of the good advice requirement “makes huge sense”, he said.
Those providing advice “will be judged as professionals case-by-case and if what they tell a client to do doesn’t stack up then they’ll be held to account for it irrespective [of] what compliance tick-boxes they went through during their process”, Mr Dunnin said.
The sort of advice that would be allowed to be given to bank and super fund customers if the report is adopted would include questions on whether a super fund member is in the right asset allocation for their age and situation, Ms Levy said.
ISA sees risk
“While the recommendations contained in the Levy report around personal advice may improve access and affordability of advice to Australians, they do so at the expense of some critical consumer protections,” Industry Super Australia CEO, Bernie Dean, said.
“The best interests duty was a critical piece of the FOFA [Future of Financial Advice] reforms.
“Introducing a good advice obligation – alongside the proposed category of personal advice providers who are not required to meet the professional standards – will materially change how advice is offered and regulated. These proposals will likely lead to lower quality of advice, which could be the catalyst for consumer harm,” Mr Dean said.
Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia, was supportive of the report.
“The recommendations from the Quality of Advice Review have the potential to improve the accessibility and affordability of advice, delivering better retirement outcomes for consumers,” Dr Fahy said.
Applying a “good advice” test to super fund staff would not reduce consumer protections because high governance requirements apply to all levels of super fund management.
“Superannuation fund trustees have obligations to act in their members’ best financial interests and a specific duty to assist members with their retirement needs. This underpins a high level of consumer protection for members receiving advice in addition to the good advice obligations,” Dr Fahy said.
A spokesman for Minister for Financial Services Stephen Jones said the government would now conduct discussions with stakeholders before making a decision on the adoption of the report.
The New Daily is owned by Industry Super Holdings
