A controversial proposal from the Federal Government to slash onerous compliance around financial advice isn’t helping put money into consumers’ pockets. If anything, it will feed the overfed banks.
The Government is to present a draft bill this parliamentary sitting proposing a new legal framework for giving advice on financial products. Under current legislation, all the compliance procedures for giving personal financial advice must be met if a person has used a client’s personal information to recommend a financial product. This applies even if the person who sells the product is only making a sales recommendation and is only able to represent products from one manufacturer.
The Government says this practice can confuse consumers and make them think they’ve received personal financial advice when all they’ve gotten is a sales pitch. True. But the Government’s proposed solution has completely missed its target.
Under the regime of the Simpler Regulatory Systems Bill, fewer obligations would be required for a person giving product sales recommendations. Not only decreased compliance, but also easier licensing and professional indemnity requirements. In fact, as there’s no statement or record of advice given in a product sales transaction, there’s little chance a consumer would be able to make a claim at all. And throw in decreased education requirements, because a salesperson doesn’t need to know all the things we expect of a financial adviser.
The Government is struggling to deal with the incessant litany of complaints regarding regulation of the finance industry. But cutting out compliance costs for those whose “pure product sales activities are being captured by the personal advice definition” begs the question of whose interests are being looked after.
In theory, the Government aims to provide a balance between business interests and consumers’ interests. But does making product sales a less rigorous ordeal help the consumer at all? Banks will have more reasons to smile about wealth-management results if such a proposal is passed. Their tellers would be galvanised into a pure product sales force. It will allow banks to subtly recommend financial products without consideration for customers’ overall financial situation because it’s a product sale, not financial advice.
The Government believes placing a product sales disclaimer on product representatives will “increase transparency for consumers to more clearly understand when advice is being provided, and when they are being recommended a product for the purpose of sales”.
Yet even the Australian Banker’s Association can see there’s going to be problems.
The ABA said the lower, ongoing cost structure of the product-sales-recommendation licence may encourage licencees to focus primarily on product sales recommendations rather than personal advice “because it is cheaper and has less onerous compliance requirements. Instead of advice becoming more accessible, the proposal may in fact have the opposite effect”.
Customers may prefer what appears to be a low-cost advice option, albeit a product sales recommendation, when they could be better off with more tailored and strategic personal advice, the ABA said.
Perhaps the Government would be more on target if it changed its focus to who can use the term “financial adviser”. If it recognises that a person representing only one product manufacturer is a salesperson more than an adviser, why not admit that financial advisers restricted to give advice on only one institution’s products are no different, and so should be labeled as such.