“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.”
Comments
The most insightful observation I have read on the matter - I have been saying the same for years. Without a product, Chapter 7 of the Corporations Act is powerless. This leads to all sorts of band-aid solutions that seek to tie advice to products (AFCA will look at any advice related to a financial product, no matter how vague the relationship is), expand the definition of products (MDA and SMA become "products" even though they are just apparatus for managing financial assets") and outsource industry oversight to organisations not beholden to the Corporations Act (AFCA, FASEA). On the practitioners' side, it means suppliers of financial services are always looking for workarounds (classify investors as wholesale, execution only, set yourself up as a finance coach). The underlying cause of the mess is the law itself.
Which is why Intra-fund "advice" should be shut down. Due to it's existence, we are back to square 1 with tied agency, vertically integrated product based advice from the manufacturer. The very thing that FOFA & FASEA was supposed to do away with.
Very well said.
The main thing the RC should have done was to ban vertically owned product providers and advice.
It didn’t and that sucks !!!!!
We are lumped with ever increasing BS Regs to try to fix the unfixable conflict of Product ownership and Adviser driven distribution.
As the Govt refuses to acknowledge the ELEPHANT in the room, real advisers thus must do it themselves.
Real Advisers have been for a long time making their own choices for the best interest of their clients without being insto / vertically owned. The demise of banks and growth of Real Advisers away from product ownership can only be good.
Unfortunately the Anti Adviser, Anti Commission Industry Super Funds have found Real Advice too hard and are the new adviser owner distribution model and as a great farce, flogging it all via Hidden Commissions charged to all and advice provided to very few.
We can only hope that one day this massively conflicted ISA model burns like the banks did.
Real Advisers will prevail.
Real Advisers are need more than ever.
Real Advisers have huge opportunity.
But
Real Advisers must rise up together and with their clients and demand the Gordian Knot of BS Regs must be cut.
To answer the question in the headline - no, it can't become a profession so long as it remains centred on product. The legislation, regulation and structure of advice as they currently stand are not fit for purpose.
The solution is simple, though would take more bravery, foresight and common sense than just about anybody involved has ever demonstrated.
1) Remove financial advice from the Corps Act and move it into it's own act.
Any product sales that occur incidental to the advice itself either falls under the new act, or is subject to the overarching 'misleading' rules of the Corps Act.
2) Remove it from the purview of ASIC.
The only hammer they have is advice-as-product so they can't continue as the regulator of professional advice (they don't, for instance, regulate medicine or engineering).
3) One disciplinary body.
One large body, responsible for standard-setting, registration, discipline and compliance. Like AHPRA or the LIV.
4) Consistent rules.
This body is then responsible for providing guidance and rules for the entire profession to follow. Like the APESB, this body would set the standards for us to operate under.
No more 'my licensee says you need an RoA/well my licensees says you need an SoA/well MY licensee says the SoA needs to be 105 pages long' - just one body of rules that we can all, reliably, follow and adhere to.
5) Abolish licensees.
There is no role in a profession for this middleman tier between the practicing professional and the powers that be - especially with one, centralised, codified body of rules, requirements and guidance. Abolish them.
Mathematically - if we're left with 10,000 advisers and we abolish licensees, but we have to pay the single authority $10,000 a year to practice - well, that's an $100,000,000 budget for that body to operate. Imagine the snouts a trough of that depth would drag out.
6) Individual registration
The above point naturally leads to this conclusion.
I don’t care how much you like your licensee, or how much ‘value’ you think you get for the inflated fees you’re paying them each month – we can never be a profession so long as they exist. We must be individually registered via a central body, like every other damned profession out there.
This (and its related cousin, vertical integration) lie at the centre of every problem in this industry. It’s time for us all to stand and accept that we must be individually registered (just as we’re individually responsible).
It’s an indictment on us as a collective that this topic is remotely controversial.
7) Professional bodies
Like the accountants, there’s room for multiple professional bodies (though with a potential membership base sub-20,000 I don’t know how viable that would be). So let them continue. But as explicit marketing bodies that exist to push the agenda that financial advice is important, valuable and needed.
8) Retain client access to AFCA (or an ombudsman), but change the terms.
Clients need a no-to-low cost avenue to pursue adviser misdeeds. There’s a fundamental imbalance in the advisory relationship and clients that have been harmed need a way to address their concerns.
But there’s no way known that advisers should be subject to the same rules, requirements and financial expectations as large institutions. The outrageous situation where an adviser can ‘win’ a dispute, yet still be out of pocket, needs to be changed if we’re to have any future.
There.
That’s what an industry focused on a positive future would be chasing as its agenda.
Instead we have 35 different headless chickens running around trying to get back on the commission gravy train, or bemoaning the fact they can’t keep 1,000 clients passively paying $200 a year in the name of the ‘public interest’.
It takes an extreme level of optimism to believe there’s much of a future in financial advice in Australia at the moment. The way things are, the mouth breathers and coneheads are going to suffocate the whole industry within a decade. But if they started chasing even half of these items, maybe we have a chance.
Until then though, we're looking at a decade of more of the same.
But it’s ok, there’s always robo-advice. The government says so.
This is a great comment. Thanks for taking the time to publish it. I hope someone from gov't reads it!
Status Quo. You've absolutely nailed it. Every single thing you just said is what needs to happen and it would solve the huge majority of the problems and turn us into a profession. Let each individual be accountable for their advice and not try and hide behind anything else. What a wonderful world that would be. A $100 million dollar budget should be able to employ sufficient staff to make sure the rules are adhered to. I only hope that someone who can make the decisions reads these comments.
so thought provoking and shocking. ...so insightful.....who is this guru? I remember reading a similar topic...oh about 50 years ago....After reading such thought provoking material, I'm off to use HUb24 because they give my licensee a discount (who cares about my clients) and I'm also busy signing up with a new product owned licensee tomorrow because of the discounts and associated benefits and discounts. Now before that, where's that study material for the annual FASEA exam gone.
It is important that the correct interpretation of 'financial product advice' is used.
Where an adviser recommends the client invest in the ABC Pty Ltd managed fund or XYZ Term Deposit - they are giving financial product advice.
However, if the adviser recommends the client invests in 'a' managed fund and 'a' term deposit - they ARE NOT giving financial product advice (they do not provide a financial service) - refer to Corporations Act Regulation 7.1.33A.
Advice is given if they recommend a specific product (ABC Equity Fund) or specific class of product (ABC managed funds).
I'm not sure you understand this yourself. The last three sentences don't line up.
It's financial product advice if you recommend a specific product or a class of products.
I understand it exactly (read the law).
(1) This IS financial product advice: I recommend you invest in the ABC Equity Fund (a specific product) or , I recommend you invest in an ABC Managed Fund (specific class).
(2) This IS NOT financial product advice: I recommend you invest in 'a managed fund'.
It's interesting to note that FASEA detailed where advisers were failing in the FASEA Exam. This was 1 area - advisers don't understand the concept of advice.
As a matter of interest, have you done the FASEA exam?
no he hasn't got a degree or passed the exam that's why he is in compliance
Just because my comment was posted under the word 'compliance' doesn't mean I am in compliance. Degree qualified and passed FASEA exam.
OK fine. Well, as an Adviser, you would know then that there are no [other) Advisers running around, producing SOAs saying "I recommending you invest in (unspecified) Managed Funds".
Makes sense. I guess one of the benefits of entrenching product at the centre of the legislation is that is a catch all mechanism that can span advisers, brokers, comparison website operators etc. Requesting to move financial advice from the Corporations Act will lead to requests from other financial service providers to be removed based upon the specifics of their industries and way of operating, which may mean some will see any changes as unworkable. I guess it also depends on how important Government/regulators feel financial advice is to nation building...not sure there are enough friends in high enough places yet...
just work with wholesale clients, the only requirement is to have an AFSL. simples.
retail clients deserve google. and dazza the plumber.
The statement "There is no such thing as financial advice in the Corporations Act unless someone sells a product" is factually incorrect.
Financial advice is a qualitative statement (as opposed to a factual statement) that is likely to influence someone into making a decision (or a reasonable person would conclude such a scenario) in relation to a "financial product" or "CLASS OF FINANCIAL PRODUCT". The latter limb is almost always overlooked by everyone commenting in this space, including the regulator.
i.e. The "lowest level" of financial advice is a qualitative statement about Superannuation (as a whole). This is a very easy threshold to cross. No sales are required.
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