Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Quality of advice review focused on advisers, not consumers
As one of the lawyers at the coalface of supporting impacted consumers both before and after the revelations of the Royal Commission, Maurice Blackburn is in a unique position to provide input into the Quality of Advice review underway.
The firm has flagged concerns around reversing many of the much-needed regulatory changes before the industry had a full opportunity to adjust, while noting that the terms of reference have a somewhat narrow focus and “expressed Hayne’s consumer-protection-focused recommendations through an industry lens.”
The result is an Issues Paper that asks the question “what impact have recent interventions had on financial advisers?” rather than “are consumers now better protected by recent interventions?”.
According to the firm, “sustainability of the sector is important, but if the quality of the advice product is not there, then the industry will fail.” Drawing open “lived experiences” of consumers, the law firm provided a narrow response to those questions most relevant to consumer outcomes.
On the topic of general advice, Maurice Blackburn sees this as a “misnomer” that ultimately leads to confusion and poor financial outcomes. Replacing this, it suggests the test should be based on the “consumer’s subjective belief as to whether the advice is tailored.” This is drawn from extensive court experience in which both factual and legal disputes exist around whether advice was tailored, and disclaimers explanatory enough to inform consumers.
Specifically, it proposes the following change to the current wording of the law with the aim being to “embed a due regard for the consumer’s reasonable understanding:”
(a) the person receiving the advice reasonably believes that the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or
The firm then switches to the affordability question, suggesting that there is some confusion around the fact that not every Australian needs comprehensive financial advice. The firm proposes that Treasury should consider “the difference between a consumer’s need for financial advice versus financial cancelling.”
“If a consumer cannot afford financial advice – even limited advice – maybe it’s not what he/she actually needs,” says Maurice Blackburn; and going further, “if they do not feel they can afford it, then perhaps they cannot appreciate the value.”
On the topic of conflicted advice, the firm highlights the success of the FOFA reforms, which “significantly ameliorated the previously staggering volume of poor consumer outcomes related to investment advice, which had, up until FOFA and especially arising out of the GFC, been driven by widespread cross-selling and other conflicted remuneration incentives.”
It suggests some work must still be done in the life insurance sector, which was exempt from the FOFA changes, noting concern “that commission structures are still central to issues related to life insurance advice,” including churning practices. To overcome this, Maurice Blackburn proposes that Treasury consider regulations for “minimum quotas” of a blend of products to be included on APLs.
Ultimately, the firm suggests that “that better, consumer-centric controls focused on the quality of advice at the front end will help prevent the threat of controversy, cost, and potential for collapse for advisers at the back end of the consumer journey.”
