Australians who seek financial advice have the right to expect that the advice they receive will be independent, high quality and in their best interests. Poor financial advice has lasting impacts on the financial, emotional, and social wellbeing of people across Australia.
The Quality of Financial Advice Review’s (‘the Review’) Proposal Paper recommendations would weaken core consumer protections and fuel the provision of poor-quality advice by vertically integrated institutions. They would incentivise major banks, insurance companies and superannuation funds to provide conflicted sales pitches dressed up as advice.
Consumer groups strongly support the retention of a principles-based best interests duty. This is a critical consumer protection that requires financial advisers to act in the best interests of clients, not their own, and to face significant penalties where they fail to do so. The proposed watering down of the best interests duty to an obligation to give ‘good advice’ will push financial services regulation back decades.
The Banking Royal Commission criticised the advice industry saying, “a ‘good enough’ outcome has been pursued instead of the best interests of the relevant clients or members”. The Review is proposing to codify a “good enough” approach – the very approach that the Banking Royal Commission called out for contributing to poor consumer outcomes.
There is a lack of empirical evidence that consumers would benefit by the deregulation of general product recommendations (currently regulated as general advice). There are a number of important consumer protections associated with the general advice model, including the requirement for advisors to be licensed and for consumers to have access to the Australian Financial Complaints Authority. The requirement to be licensed to provide general advice is the most valuable tool currently available to ASIC to rein in the burgeoning ‘finfluencer’ sector. It would be a grave error to entirely remove the regulation of general advice without considering the implications for the broader financial system.
It is clear from decades of ASIC reviews into the advice industry that conflicts of interest drive poor consumer outcomes. Conflicted remuneration such as life insurance commissions, asset-based fees and general insurance commissions incentivise the industry to recommend products that have the highest financial payoff for the adviser.
Consumer groups strongly support the Review recommending the banning of all remaining forms of conflicted remuneration, to clean up the major conflicts which have marred this industry once and for all. Consumer groups recognise the limitations of disclosure as a consumer protection. However, disclosure plays an important role in ensuring there is transparency and accountability in the industry. Designed correctly, disclosure documents enable a client to make an informed decision about engaging with a financial adviser and whether they are getting value for money.
Read the full submission PDF.220923 – Quality of Financial Advice Review – Proposals Paper – Joint Consumer Submission