Changes would allow less experienced people to provide financial advice – which sector leaders say is a recipe for trouble
Upcoming reforms that will allow less experienced individuals to provide personal financial advice have been met with strong criticism from financial advisers.
The reforms, announced by Financial Services Minister Stephen Jones (pictured above left), introduce a new category of "qualified advisers" who can offer personal advice without the current stringent requirements. While super funds and insurers welcomed the changes as a positive move, financial advisers expressed concerns about the potential impact on the profession and consumer trust, according to a report by The Australian.
“The FBAA is concerned about the announcement that the federal government is introducing a new class of financial advice provider that will allow employees of banks, insurers and other financial institutions to provide advice under the title of ‘qualified advisers,’” White said in a statement emailed to MPA. “This presents more questions than it does provide solutions, and has the potential to backfire. We know financial institutions and banks will always put profits first, and their track record is abysmal. How can an employee of an institution selling a product possibly act in the best interests of the consumer?”
Sarah Abood, CEO of the Financial Advice Association Australia, expressed similar sentiments.
“Our members fear this could be winding the clock back five years on our profession,” Abood told The Australian. “It appears to invalidate the hard work and pain that has been involved in creating financial advice as a profession and winning the trust of consumers.”
The financial industry has undergone significant changes since the 2018 Royal Commission, which exposed misconduct such as poor governance and charging fees for no service. These changes aimed to improve professionalism and consumer protections. However, they have also led to a decline in the number of advisers at a time when 5 million Australians require advice for retirement planning, The Australian reported.
The reforms incorporate recommendations from the Quality of Advice Review conducted by Michelle Levy. Jones believes that the reforms will attract more people to the profession.
“People are leaving the industry in the thousands and joining in the hundreds … If current trends continue, we will continue to see a decline in the professional advice workforce,” the minister told The Australian. “I’m trying to reverse that. This new category of ‘qualified adviser’ actually creates a career path for people to start, get a basic qualification, get experience and then go on to get an advanced qualification and join the ranks of the professional planners.”
The changes remove safe harbour steps for professional advisers and replace the requirement for a Statement of Advice with a "clear, concise, and effective" record of advice. The reforms also make companies or licensees entirely responsible for the advice provided by their employees, The Australian reported.
While the changes aim to attract more people into the advice industry, industry insiders say they also raise concerns about the potential confusion for clients. Abood supports the changes but believes that the new category of "qualified advisers" might offer advice that passes as free information, blurring the line between partly-trained salespeople and fully qualified professionals.
White also worried that these new advisers would simply end up as salespeople for their institution’s products.
“Will these ‘qualified advisers’ give real actual independent advice or limit their advice to their ‘off the shelf’ products” he said. “The product they are pitching to the client may well not be in their best interest compared to other products in the financial services arena. So how can they meet any sort of best interests test?”
White also argued against the plan of making institutions solely responsible for advice given by their employees.
“If there is a breach the licensee alone should not be responsible, but this responsibility and accountability should extend to the individual giving the advice,” he said. “If not, we know from past experience that the large corporate just pays the fine, gets a slap on the wrist, and moves on.”
The reforms have been welcomed by the superannuation, insurance, and financial services sectors, The Australian reported. AustralianSuper, the largest super fund in the country, sees the reforms as a major step in opening up financial guidance and cost-effective advice for millions of Australians. Colonial First State said the rule changes would allow them to address the needs of their super members and investors more effectively.
The Council of Australian Life Insurers (CALI) also supports the reforms, as they allow life insurers to provide simple advice directly to their customers.
“Through qualified advisers, life insurers will be able to provide simple advice directly to their customers to give Australians peace of mind as they make some of life’s biggest decisions,” CALI chief executive Christine Cupitt told The Australian. “Of course, this will only happen with appropriate limitations and strong consumer protections to ensure better outcomes for Australian workers and their families.”
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