Financial advisers are "deeply" concerned over the Federal Government's plan for a new advice model that will allow life insurers to provide "simple advice" to consumers.
However, the Council of Australian Life Insurers (CALI) supports the policy change, saying the creation of a class of “qualified advisers” will improve Australians’ access to “affordable advice” when they need it.
Assistant Treasurer Stephen Jones, who is also Financial Services Minister, announced the plan as the Federal Government confirmed its position on the final tranche of Quality of Advice Review (QAR) recommendations after months of deliberations.
In last week’s announcement, he also said the Government is taking up the QAR recommendation to scrap the statement of advice (SOA) requirement. Treasury says the SOA will be replaced with a “more fit-for-purpose, principles-based, advice record”, in line with the QAR proposal.
Mr Jones says the new advice model is a “pragmatic” step that will expand the provision of personal advice to improve consumer outcomes. The advice model will apply to all financial institutions, including general insurers, banks and superannuation funds.
The new class of advisers will not be able to charge a fee or receive a commission, as recommended by the QAR final report, and Treasury says additional guardrails not made by the QAR will be introduced such as Government-mandated competency standards and compliance with a “modernised” best interests duty rule.
But the Financial Advice Association Australia (FAAA) says its members fear the new advice model may turn out to be counter-productive.
“Specifically, the Minister has announced that any financial institution will be able to provide personal financial advice to consumers, using people who are not financial advisers – yet who would be called ‘qualified advisers’,” FAAA CEO Sarah Abood said.
“There is no detail on the qualifications that would be required, however they would be substantially less than what is currently required to provide financial advice. Thus, the proposed term is self-contradictory and extremely likely to confuse consumers.”
She says the Government appears to be handing back to institutions the right to hire minimally qualified salespeople, who call themselves qualified advisers, to sell their products to consumers, instead of “fixing” the red tape that is costing Australians more to seek advice.
However, life insurers support the new advice model. CALI CEO Christine Cupitt says the proposed change is a “win” for consumers.
“This is a win for them being able to have better access to the financial advice that they've been crying out for and better access to the information they need to make those informed decisions about protection for their family,” Ms Cupitt said in an interview.
“At the moment we can’t go through a sensible list of options for that customer to consider.”
She says professional financial advisers will still play a “critical” role in helping Australians going forward.
“For many people, continuing to see a financial adviser or a professional financial adviser will be the right thing for them."
She says it is “appropriate” that commissions or charging of fees are not allowed under the new advice model.
“It’s very important that any new advice arrangement has the right financial incentives for the people who are providing the advice. Our understanding…is that they can't receive commissions and that life insurers can’t charge for the advice.”
CALI backs the application of the “modernised” best interests duty rule to all financial institutions and their “qualified” advisers.
“That means that when we provide advice to our customers, we're looking after their interests and making sure that they get better financial outcomes.”
Super Consumers Australia says the Government made the right decision to keep the best interests duty rule and reject the QAR recommendation to create a new good advice duty.
“The Quality of Advice Review had proposed a weak ‘good advice’ duty for some forms of financial advice,” Acting Director Gerard Brody said.
“It’s a win that the Federal Government has rejected this radical attack on consumer protection, and has instead upheld the best interests duty.
“The best interests duty is vital in light of conflicts of interest which have riddled the financial advice sector. Australians deserve independent and high-quality advice,” he said, reported Insurance News.