The AMP enforceable undertaking has highlighted some more woes in the financial planning arena and the media are once again making hay.
As a financial planner in an independently-owned practice, I suppose I should be joining the party and slagging off institutions.
However, I find myself feeling sympathetic and wondering if some of the crimes are as bad as they seem, or impossible to avoid given the current legislation.
You will doubtless remember the recent Australian Securities andInvestments (ASIC) shadow shopping survey that revealed advisers had failed to provide a written Statement of Advice (SOA) in 46 per cent of cases.
However, on closer examination of the report, in 33 per cent of cases the planner gave quick advice that in ASIC’s words “could, and should have been phrased as general advice, which does not require an SOA”.
In another 25 per cent of cases, the planner advised the client to stay in their existing fund, which ASIC felt was “quite reasonable”.
In another 25 per cent of these cases, the client “did not proceed to further advice”.
In all of these cases the planners allegedly gave personal advice that needed an SOA. But if no SOA exists, how did ASIC know that personal advice was given rather than general advice?
ASIC says that advice is considered personal advice where the provider “has considered one or more of the person’s objectives, financial situation and needs”.
So if the stooge dumped all of their personal information on the hapless adviser in the survey, it appears that anything the adviser says will be classified as personal advice and an SOA must be written.
In real life situations, prospects and planners meet up to see if there is any merit in forming a relationship. Sometimes it happens, sometimes it doesn’t. Whichever way it goes I cannot imagine any possibility where advice can ever be ‘general’ under the current legal definitions.
This is ridiculous. It means an adviser cannot show the client how he or she could add value without crossing the boundary between general and personal advice.
This effectively means that if planners do not write an SOA after every meeting with a new prospect they are breaking the law.
Why must a planner write an SOA for someone who doesn’t want any more contact, or doesn’t want a SOA or won’t pay for one?
In most of the circumstances detailed above planners have been penalised for being helpful. In my opinion, the law is faulty, not the planners.
From a superficial reading of the alleged AMP events, it seems AMP fell down on four things.
Two of them were that AMP “made statements that AMP planners could consider a broader range of products than permitted, which could have misled consumers” and they had “inadequate arrangements for managing conflicts of interest”.
The first issue implies that people were misled into thinking that AMP offered non-AMP products when they didn’t, and/or that the planners were not authorised to recommend the non-AMP products.
This seems very strange. Flexible Lifetime Super has masses of non-AMP products clearly detailed in the PDS [product disclosure statement], and I find it hard to believe that AMP planners can’t recommend them.
The second issue is also hard to fathom. I don’t see how a financial institution that distributes products via authorised representatives remunerated by commission can ever conclusively prove there is no conflict of interest.
Surely the key issue is whether the client is being misled by someone with a conflict of interest, and received bad advice as a result.
I imagine if I stopped an AMP planner in the street and asked to see his business card, it would have a clearly identifiable AMP logo on it and the words ‘authorised representative’ in easily readable print.
His FSG [financial services guide] would clearly indicate he was connected to AMP, and as some of his revenue is commission-based, he is not allowed to call himself independent, or even use the term.
Are you seriously telling me that a prospective client is not expecting to get a recommendation to buy AMP products?
Even the term ‘authorised representative’ implies that the adviser is an employee.
How on earth could a prospective client be misled? How can AMP pass the conflict of interest test? Tell the planners to recommend FirstChoice or Asgard?
The other issues for AMP was that the files did not show a “reasonable basis for advice” and failed to make proper disclosures about the costs and consequences.
ASIC is fixated on costs, and the ability of a planner to add value in terms of extra performance, admin efficiency and service does not seem to come into the equation. Is it reasonable for an adviser to recommend that a prospect switches super funds to his or her licensee’s master fund or portfolio service?
Well, simply moving a client from the moderate option of an industry fund to the moderate option of a personal super fund is asking for trouble.
But, if one of the key stated reasons is that the vehicle provides the adviser with sufficient support to reduce the overall costs of providing advice, why isn’t that okay?
I feel there are some fundamental issues that need to be addressed before the financial planning industry can move forward.
We are often unfairly persecuted by the media, and are sometimes given unrealistic laws that do not reflect real life.
ASIC has given some useful guidelines on how to write concise SOAs and I applaud them for it.
However, there is much to do.
Rick Cosier is a Sydney-based financial planner.
