Removing best interest duty as it is currently defined when delivering simple financial advice will remove some barriers for Australians taking up financial advice, according to Rice Warner.
In analysis, the research house said simple advice was unlikely to be against the interest of a consumer and the amount of risk they were taking was low.
It said the industry needed to reset and change currently legislation to reflect the risks borne by consumers and the likelihood of harm resulting from any advice they received.
Rice Warner said some steps the industry should consider making were:
- Group together all education, guidance and the existing general advice and call them all general information. This could include all strategic advice around budgeting and debt reduction which can easily be delivered by accountants and others with some supporting financial tools;
- Separate personal advice into simple and complex based on the degree of risk borne by the consumer. Most single-issue advice including all intra-fund advice provided by superannuation funds would fit into the simple category; and
- Simple advice would not need to have a best interest duty as currently defined. For example, if someone wants to take out a modest amount of extra life insurance or put more contributions into their superannuation fund, the amount of risk they take is low and as it is unlikely to be against their interests, so the documentation should reflect this.
Rice Warner said the separate review and elimination of under-performing superannuation products by the Australian Prudential Regulation Authority, together with the Australian Securities and Investments Commission’s design and distribution obligations would reduce the risks of taking up a poor product.
“We also need a catalyst to encourage people to start using financial advice. Once the structure has been cleaned up and simplified, it makes sense to allow a modest tax-deduction to rebuild this valuable community service,” it said.
It noted some key barriers to consumers who needed or wanted to take advice were:
- Value – the service is partially intangible, and the value is difficult for consumers to quantify;
- Cost – financial advice as currently regulated is costly to deliver and consumers believe it to be too expensive in relation to what they perceive as its value; and
- Delivery – the advice service is heavily focused on compliance rather than the client’s strategy.
