Australian rules an “impediment” to giving financial advice – report

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Financial advisers in Australia have been told the regulations that control their work are complex, difficult to understand and difficult to comply with.

Tuesday, February 14th 2023, 6:09AM 5 Comments

by Eric Frykberg

And so a range of changes should be brought in to make the provision of advice easier and cheaper to do.

The comments came in a report called the Quality of Advice Review, which was released at the end of last week. It was done for the Federal Government by a Sydney finance lawyer Michelle Levy,

The review followed a similar report on the banking industry and it followed years of complaints that state regulation in Australia was needlessly complicated.

This view has an echo among New Zealand advisers.

In her report, Levy basically agreed with these complaints.

The regulatory framework had “serious defects,” she said.

“They are an undoubted impediment to consumers being able to access affordable financial advice. They are also an impediment to consumers accessing high quality advice. The regulatory framework has not even proved effective in preventing consumer harm,” Levy wrote.

She went on to say that regulations had accumulated with rapid succession over a short period of time in response to crises and scandals, she wrote.

The consequence was patchwork law – it was not coherent and was plainly not working.

Levy went on to defend the role that advisers play in helping consumers deal with banks, superannuation funds or insurance companies.

“The regulatory framework does not accommodate this well,” she wrote.

“It makes it hard for institutions to give their customers simple personal advice and it makes it hard and expensive for financial advisers to give their clients the advice they want at a price they are willing to pay.”

Levy's report said there were about 16,000 financial advisers in Australia, but that number was still too few to deal with a population of 25 million.

In her report, Levy made 13 sets of recommendations. They included amending the law to give more precise definitions of advice and to replace existing obligations on advisers with a true fiduciary duty to their clients. This would eliminate the “Safe Harbour” protection available for advisers who follow required procedures when they deal with a client.

Levy's inquiry heard complaints that existing Safe Harbour provisions encouraged advisers to follow an established process rather than carefully follow the specific needs of a client.

These changes would apply only to financial advisers.

Other sections of the report recommend more explicit rules for dealing with conflicts of interest and greater use of new technology by advisers.

During her inquiry, Levy heard the cost of providing advice could sometimes be greater than the sum of money earned from commissions.

Despite this, she did not favour increasing commissions. Instead, she suggested her proposed reforms to the way the industry is governed would make it cheaper and easier for advisers to do their job.

In summary, Levy said the regulatory framework should support the delivery of proper advice.

“The recommendations in this report will, if they are accepted, improve the accessibility and affordability of quality financial advice.

“They will encourage and make it easier for financial institutions to give advice to their customers and they will make it easier for financial advisers to tailor their advice to the needs of their clients.”

Tags: financial advisers

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