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Jones’ advice dilemma: How to foster Holden advice provision in a Rolls Royce industry

The concept of a 'qualified adviser' with less qualifications provoked an industry backlash. While the government has signalled it is open to discussion, the problem remains – how to open up advice to more consumers at a viable cost?
Regulation

It was a tactical retreat, but a retreat nonetheless. When the Government unveiled its comprehensive financial advice reform package on 7 December, it introduced a new concept – “qualified advisers” – who would deliver simple advice at scale that, according to Financial Services Minister Stephen Jones (pictured, right), “would be high quality, helpful, and safe for consumers”.

These advisers would have to meet certain (as yet unconfirmed) education standards, focus on providing advice on simple matters, and be barred from charging a fee or commission.

The changes would apply across all financial institutions, including superannuation funds, life and general insurers, and banks. It is expected this new class of adviser will largely be employees of licensed financial institutions, with the licensee wholly responsible for the advice provided.

  • The banks, super funds and insurers could not believe their luck. Here was a Labor government, the architect of the 2013 FoFA reforms and principal agitator for the 2019 Financial Services Royal Commission, opening the door to a watered-down version of financial advice. The advice industry, which has spent years developing a profession that demanded qualifications and standards (including ethics), was mortified.

    What particularly stuck in the industry’s craw was the word “qualified”, especially as it came with no explanation as to what that would entail. Fatuma Akalo, a financial adviser with the wealth management group Wattle Partners, succinctly summed up the industry’s misgivings. “To me, the phrase ‘qualified adviser’ means someone who has undertaken a level of study and has industry experience recognised by a professional or regulatory body. Thus, the term is misleading and confusing to consumers who won’t be able to distinguish between a qualified adviser and a financial adviser. To them, both titles may seem interchangeable, but that is far from the reality.”

    Steve Sloane, managing director of the Link Wealth Group, expressed similar sentiments. “I believe the term qualified adviser would cause confusion unless there was overwhelmingly clear advertising and communication campaigns around it. I think as an industry we could create a title that is far clearer to avoid blurred lines.”

    Industry bodies such as the Financial Advice Association Australia (FAAA) could not get to Canberra quick enough to dissuade Jones from implementing this reform. And they had some success, with the minister acknowledging “industry concerns” and clarifying that the term “qualified adviser” was a working title. He also reiterated that the government is committed to ensuring the title clearly differentiates between the simple services these individuals can provide and professional financial advice.

    In making that concession, Jones was implicitly recognising the giant strides the industry has taken over the years to embrace professionalism – often in the face of strong opposition from fellow advisers. Their numbers, especially post the Hayne Royal Commission, have thinned, but the vast majority of those who have remained can rightly call themselves professionals, having met higher educational and industry standards. Having done so, they are rightfully wary of a new category of adviser that, at best, is confusing, and, at worst, returns the industry to the bad old pre-royal commission days.

    That said, Jones has a genuine dilemma. For many consumers, the cost of advice is prohibitive. So, how to open up the advice market (remember, the Productivity Commission is estimating a$3.5 trillion wealth transfer over the next 25 years) without surrendering consumer protections?

    Sloane argues that with strong guidelines around the scope of work and advice delivery, the ‘qualified adviser’ concept could work. “It could be part of a bigger solution to fill the low-cost advice space –provided the term clearly differentiates advisers with education and experience from those without it.”

    Former Labor MP Bernie Ripoll, who chaired the influential 2009 Inquiry into Financial Products and Services in Australia that laid the groundwork for the FoFA reforms, takes a more benign view of the term “qualified advice”. Although agreeing the term will cause some confusion, he says there are many and sufficient safeguards and protections in place for all consumers receiving any form of advice and services.

    “The significant question becomes how to protect consumers but still allow the provision of a service,” Ripoll tells The Inside Adviser. Under the current regime that is not possible, and this change should allow for greater access to personal advice where people will most likely want to receive that advice, being from their bank or super fund.

    “If we all agree that more people need advice, then there are only two ways to create an environment for this to happen: increase the pool of advisers and/or increase the use of digital at scale. Both can only be done via the institutions, banks, super funds, and insurance companies.”

    It’s a valid point, but unlikely to appease advisers like Akalo. From her perspective, more lenient education requirement for qualified advisers who don’t face the same compliance/legal requirements is “very unfair” and seems counter-intuitive for a government trying to mitigate the issues that arose during the royal commission. “It’s these same institutions that are about to be re-instated with the ability to give limited, simple advice,” she says.

    This is the tightrope the Government must walk. It can take credit for many of the reforms that have established a professional advice industry – a Rolls-Royce service for those that can afford it. The challenge now is to build the Holden model that still has all the consumer safeguards. It won’t be easy.

    Nicholas Way




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