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Release reins of general advice to reset market: Vanguard

“Personalised guidance” by funds, managers could increase financial literacy

The closing of submissions for the Quality of Advice review saw a flurry of detailed proposals released in recent weeks. While the key points remained the same across most of the associations, that being clarity on consent and disclosure, removing the safe-harbour provisions and greater tax deductibility, proposals from the other side of the fence offered some food for thought.

Vanguard Investments, the $11 trillion investment giant with over 30 million clients and operations in the advice sector in the US, UK and Germany, put forward proposals that were backed by experience entering a number of comparable advice markets to Australia. At the centre of this was a “sliding scale” of regulatory compliance and rethinking of how financial advice is actually defined.

At the centre of its proposal was to “remove the concept of general advice from the law completely” and redefine it with more clear compliance and disclosure requirements. Vanguard suggests putting some power back in the hands of the product provider, whether a super fund or fund manager, via what it terms “personalised guidance.”

  • “This is a category of customer engagement by product issuers and digital platform providers that is intended to help current and prospective customers in their decision-making process under an educational-style self-directed model or providing guidance, including nudges,” but of course not expert advice. Clearly, this would be challenging to achieve in the current regulatory backdrop and limited nature of intra-fund advice.

    Personalised guidance would be introduced as law as a regulated activity in an effort to significantly improve financial literacy. Financial advice would then be redefined and split between limited and comprehensive advice, with varying fact-finding and disclosure requirements at each level.

    Interestingly, the group challenged the regulatory and industry research that suggests “point-in-time” or topical advice is the way of the future, noting that many in the US and UK markets who were left to undertake rebalancing or other tasks following the receipt of limited advice “failed to do so,” potentially to their detriment.

    The group shares the general view that the safe-harbour provisions should be removed, but best-interests duty retained, and suggests that both the UK and US should be looked upon as sources of insights into the future of the industry. With a personal super product set to launch in Australia, Vanguard’s role in the industry is only going to grow, with this unique view an interesting aside to what will be a busy year for policy makers.

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