Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
‘No compromises’: Levy details advice review mindset
“I think it did need a lawyer,” said Michelle Levy, referring to her role as lead on the Quality of Advice Review.
It’s just one of many things that set the Allens partner apart from the long list of arbiters sent in to fix the industry through various reviews, royal commissions and inquiries over the past two decades.
At an industry event Tuesday night Levy made another distinction clear: while the advice industry is replete with disparate and often polarised views on how the regulatory settings should sit, she refuses to compromise or come to a what she calls a “synthesis” solution.
But finding the right fix to what financial services minister Stephen Jones called the “hot mess” of advice regulation was never going to be easy.
“I don’t think anyone told me that things are going well,” Levy quipped to a room full of journalists.
Before writing her initial draft recommendations (which came in at “a couple of hundred thousand words”), Levy spoke to stakeholders to get a detailed view of the prevailing issues. 130 submissions led to consultations with advisers, industry associations, licensees, banks, insurers, super funds, consumer groups and the regulators.
She even buddied up with the treasury secretariat to visit analogous institutions in the US, the UK and Singapore.
“I wasn’t just there listening,” she said. “I questioned and debated with people.”
After speaking to hundreds of stakeholders, the spectrum of opinions was predictably broad.
Advisers railed against a regulatory burden that has forced them to increase prices. Banks and insurers complained that the law is too uncertain and that the obligations and risks were too disproportionate to the reward.
Consumers just wanted to be able to afford simple advice.
Many suggested reducing the amount of steps in the safe harbour provisions, tweaking the best interests duty, removing annual consent arrangements or expanding intra-fund advice would do the trick.
Some questioned the value of financial advisers in the first place, suggesting consumers should just go to the government for help.
“But none of those changes would make good financial advice available, in my view to a large number of people,” she said. “And some I worried would actually affect in a bad way the quality of advice that was given.”
Not a mediator
Levy said she looked at the whole consultation process like a lawyer would – which makes sense, given the review is ostensibly looking at the regulatory framework. And that meant taking an approach that it could be argued her predecessors didn’t, one that entailed a single-minded, almost bullish approach that didn’t seek to mollify stakeholders.
“My role wasn’t to be a mediator,” she said. “And it wasn’t to try to come up with a compromise between the different views of different stakeholders. My role was to recommend changes which would improve the accessibility and affordability of the quality of advice.
“And so my recommendations do not reflect a synthesis of suggestions or recommendations by stakeholders, they reflect my assessment of what I think should be changed in the regulatory framework in order to achieve those ends. And to the extent that it means it will be easier for advisers to do their jobs [and] easier for financial institutions to give advice. That’s really a happy coincidence, because that will further the interests of consumers.”
Levy wouldn’t speak on her final suite of recommendations after promising the minister she’d give treasury the space to assess her proposals and confect a response.
But if her initial draft is anything to go by, and treasury gets on board, the next wave of advice regulation will be a sharp turn towards more principals-based, adviser-friendly regulation.
A lot of the suggestions put forward by the people Levy consulted were included in her draft proposal. Yet they were adopted under her terms, with a focus on finding the right solution rather than keeping everyone happy.
Statements of advice will be less of a cost anchor on the advice process. Banks and super funds will return to the industry on a second tier, with ‘good advice’ their new primary mandate. Best interests duty, appropriate advice duty, duty to warn and duty of priority will all be abandoned. And the term ‘relevant provider’ will become the new badge for consumers to look for when they need real, fee-paying advice.
Levy’s final recommendations, locked up since being handed to Treasury on December 16, show all the signs of being a bold and punchy swing at fixing the industry’s most egregious regulatory issues.
She may not get everything right, but in refusing to compromise her way into a tepid aggregate of opinions, Levy will likely instigate nothing short of dramatic reform.
