Advisers should not be held accountable for product failure, and product and advice should remain separate, according to the Association of Independently Owned Financial Professionals (AIOFP).
Speaking to a Senate Committee on submissions to the Better Advice Bill, the AIOFP argued it was important to have this distinction legislated so it would be considered by the Financial Services and Credit Panel (FSCP).
Phil Osborne, AIOFP compliance expert, said just because a product had failed does not mean the adviser did not uphold their responsibilities.
“An adviser puts in the research, they will go through a due diligence process and that’s why we have approved product lists, and there is a certain amount of research that goes into that,” Osborne said.
“If the product provider has been shielding things from the research process… unfortunately what has happened in the past is that the adviser has been held accountable.”
Osborne said advisers had been held responsible for lack of disclosures by product makers, which the Australian Securities and Investments Commission (ASIC) failed to pick up on.
“It’s something that needs to be taken into account, simply because a product actually failed it does not mean the adviser has failed in their attempts to work in a client’s best interest and perform their due diligence,” Osborne said.
“Our concern is this has happened quite a bit and we’d like to see that aspect covered by the FSCP.”
Peter Johnston, AIOFP executive director, said one of the problems with product failure was that consumers mistakenly believed a product was safe just because it was on the market.
“Consumers think because a product is released on the market, ASIC has actually looked at the business model and the directors, etc. and they don’t,” Johnston said.
“This product which hits the market has been tested if it complies with four or five legal requirements, but ‘mum and dad’ think it’s been looked at and it hasn’t.
“This product hits the market and then you have conflicts out there in the research industry and they can go buy a favourable rating.
“Then they go onto the internet and advertise, and ‘mum and dad’ buy it, thinking it’s got a five-star rating and has been approved by ASIC but it hasn’t.
“What has happened in the past is we have $40 billion worth of funds failed since 1980 and what has happened is ASIC has run for cover, the product managers have run for cover, so the advisers get the blame.
“Advisers are just consumers like every other consumer. We’re relying on other parties to do the right thing and manage the product properly and unfortunately what happens is we get blamed while the others run away and avoid accountability.”
Johnston said the association believed product and advice should be totally separate, like it was pre-1990.
“During the ‘90s is when the banks got involved with the industry and set up vertically integrated models, which is internal advisers selling their own products; this is where the industry went backwards which was a huge conflict for consumers,” Johnston said.