“There is no such thing as financial advice in the Corporations Act unless someone sells a product and until that is subject to amendment it will be difficult to fully professionalise the financial planning industry, according to dealer group executive, Paul Harding-Davis.
Harding-Davis, who played a part in industry input around the Financial Services Reform (FSR) legislation, said he believed that because the Corporations Act continued to hold a connection between product and advice all future efforts will amount to trying to hammer a square peg into a round hole.
“If you were a product manufacturer in the 2000s and 95% of your sales came via advised channels you immediately set about taking a strong position in owning and influencing advice which they called and still refer to as distribution,” Harding-Davis said in an analysis provided to Money Management.
“Add to this the licensee structure and it was inevitable, and not a surprise as Hayne found it, that the advice industry grew centred around product. Nor is it surprising that the regulatory frameworks are product centric and keep trying to hammer a square peg into a round hole.”
“The regulators have little choice – that is the law,” he said.
Harding-Davis said that perhaps the most material problem with the current legislated definition of advice was that the product recommendation represent the final and least valuable part of the advice process.
“At least now there is substantive research to back this up. It is the strategic and behavioural coaching that adds almost all the value,” he said.
“I do understand that products can fail, and one of the consequences of this definition of advice has been advice aimed at picking up the pieces after those failures.”