Scrap outmoded planning laws

Key financial services laws need to be scrapped and redrafted afresh because they are too focused on the delivery of products rather than advice, according to a specialist financial services lawyer, Ian McDermott.

McDermott is urging the scrapping the of chapter Seven of the Corporations Act because of what he describes as inherent structural problems and complexity which have not been addressed by either the Future of Financial Advice (FOFA) changes or the industry's self-directed moves towards becoming a profession.

"While I support the move to making the financial advice industry a profession, and FOFA introduces some worthwhile progress towards that end goal, there is no escaping the fact that the financial services laws were drafted ostensibly with financial products in mind," he said.

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McDermott said this had given rise to enduring issues and concerns by financial advisers that they are seen as "product floggers".

"We all know that the current financial services regime has developed from the previous life insurance and fledgling investment product industry. This has resulted in the law having a ‘product' focus instead of a strategic advice focus. Even advice, under the Act, is called ‘financial product advice'," he said.

McDermott said FOFA had tried to remedy some of this by introducing the term ‘financial advice' for the first time, as opposed to financial product advice but suggested that as ‘financial advice' was not defined in the Act, this actually resulted in greater legal uncertainty instead of the greater clarity sought.

"In my view, if the Act were to introduce a new definition of ‘financial advice' as opposed to ‘financial product advice' this would help break the nexus between advice and product and be another useful step in making this vital industry the respected profession we all want it to be," he said.

"But this would be difficult for regulators as such a definition could capture advice by real estate agents, accountants, lawyers, and others. So, the definition would need be properly scoped."

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So long as we keep the product providers away from the table when re-writing it, I think you are definitely on a winning proposition.

Couldn't agree more. I've said it myself for a number of years, that the laws are fundamentally wrong and until there is a total change, then the industry will never fully become a profession. With effectively 3 professional pillars: Lawyers, Accountancy and Financial Planning.

The legislation needs to stop being framed in the context of "product" provision, it needs to be 'advice' framed and the provision of a product then only part of a possible solution.

Things have certainly moved forward, but unfortunately it is very unlikely to fully evolve in my working lifetime (15 years max to go), given the considerable vested interests in selling products, rather than providing financial advice.

I may be a cynic, but it seems that the first thing a review would do is to ask for broad industry participation, So all the large companies will put in submissions. Small operators are seen as small and lacking breadth of understanding so they should be ignored.

Ian McDermott's comments are all well and good, but I give insurance advice where the product is part of the strategy. I don't mean a generic product like 'income protection', I mean a specific product from a specific insurer and a specific underwriter (financial and health). You can even through in Claims Experience (good and bad). For some reason many 'experts' believe that all policies and attitudes to paying claims are the same and its premiums that differ. Nothing could be further from the truth.

All we need is a best interests duty in the legislation. Everything not related to this is superfluous and a burden on the client and the planner. This should apply to all professions (lawyers and real estate agents included).

Adisers have been saying this for awhile now. SOAs and para planning and compliance are all focused on product as are licencees. We are in the dark ages and it needs to change now. The problem is I don't beleive our professional associations can comprehend what's needed. They think working harder with more paperwork and less remuneration is the way forward. The Dealer groups that distribute product won't be in a hurry to encourage advice only situations. No money in that.

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