This week I am writing on something closer to home – the Government’s release of the financial advice reform package following the Quality of Advice Review. The reason for writing is to explain some of the significant changes occurring given these changes are mostly invisible to the Australian public, but will have a big impact on the cost and quality of advice that is being delivered.
The Government chose 14 of 22 recommendations put forward by the enquiry led by Financial Services lawyer – Michelle Levy. By way of background Financial Adviser numbers in Australia have shrunk from 30,000 in 2019 to just on 16,000 today. This reduction has been bought about by rising costs, increasing bureaucracy and mandatory education qualifications. Many experienced long standing advisers were forced out resulting in the skills shortage we have today.
Further, some years ago the Government introduced a levy on all financial advisers to pay for the activities of the Australian Securities and Investment Commission (ASIC). Since then, ASIC has grown exponentially. Our Adviser levies for this year will increase by just under 300%.
The Government has moved to empower Big Super funds (read Industry super funds) to offer advice internally and that advice will be “Good Advice” not necessarily “Best Interest Advice”. The definition of “Good Advice” is advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided. Contrast this with the best interest duty that requires advisers to put client’s interests first, to make sure the advice is right for each particular client and to warn the client if the advice is based on insufficient information. For a person walking in off the street how will they be able to discern between “good advice” and “best interest” advice? The short answer is that they will not be able to and the consequences will be far reaching.
Apart from creating an unlevel playing field, the changes wilfully encourage conflicted remuneration. The Industry super funds will be allowed to charge a percentage of fees for this “group” advice across all members of their super fund and there will be no ability to opt out of this. For these “good advice” providers their product universe will consist only of the suite of funds available under their super employer. Given these people would be remunerated based on holding funds with their employer, will they ever recommend going to cash? I would be surprised. What if the fund they are employed by is a “dog” performance wise. Will they recommend to go elsewhere? Once again I would be surprised.
Noting the Minister’s comments; “Most Australians don’t have complex financial affairs that require a comprehensive advice plan from an Adviser”. My thirty four years of experience working with clients tells me otherwise. Retirement planning is complex and should not be left in the hands of people who have completed a certificate level training and who offer “good advice” at no direct cost.
I laud the aspiration to inform and empower Australians to plan for their future and their retirement but reverting to what are effectively tied agents, with limited training while acting for their respective Industry super fund will not end well. It did not end well previously just 5 years ago when the Banks were forced out having been forced to pay millions of dollars in remediation costs, so why would this time be any different?