Regulatory system for financial advice failing consumers

From

John Maroney

The SMSF Association says the current regulatory system is failing consumers with an outdated compliance regime, impost from Australian Financial Services Licensees (AFSLs) and the operation of scaled advice the main barriers to providing financial advice that is more accessible, cost effective and relevant to SMSFs.

Association CEO John Maroney says: “After nationwide consultation with our members, the Association has found that the advice process is lengthy, costly and prioritises compliance and the needs of AFSLs over consumers.”

These findings form part of the Association’s submission to ASIC’s Consultative Paper 332 (CP 332) – Promoting Access to Affordable Advice for Consumers.

The submission, which makes 13 recommendations, says: “Our priority is for reform that reduces complexity, improves efficiency and drives harmonisation to better enable the provision of affordable, accessible and quality advice to small businesses and consumers. We believe that through CP 332, ASIC can take the initial steps towards this goal.

“At an overarching level, this goal can be achieved through improving the quality of regulation and guidance that governs the provision of financial and tax advice, including minimising the burden of regulation on businesses and individuals.”

The submission lists eight factors inhibiting a better regulatory advice model: compliance costs and levies; licensees creating a significant extra layer of compliance and costs; lack of clarity on how scoped advice can be provided; compliance advice documents that are not fit for purpose; ASIC’s image; guidance often not understood or read; the failure of the limited licence framework; and a regime that doesn’t support strategic advice.

Maroney says: “The SMSF sector could benefit greatly from the introduction of ‘strategic advice’ that could be an integral part in developing a far more consumer-focused financial services regulatory system.

“The current regulatory system makes it very difficult for SMSF trustees to obtain the limited SMSF advice they require. We believe every effort should be made to implement ideas and changes, even where improvements may be difficult to fit into the existing framework – and strategic advice is central to this.”

He says the growing interest in strategic advice is because many consumers want this advice rather than advice on specific financial products. Additionally, with comprehensive advice out of reach for many Australians due to cost, it is clear more are seeking piece-by-piece strategic guidance.

“With improvements to the way limited advice is offered out of CP 332, strategic advice could be the foundation on which a consumer-focused framework is built.

“This could ultimately allow appropriately educated advisers registered with the single disciplinary body to provide strategic advice on areas such as superannuation, retirement and cashflow without specific reference to financial products.

“A strategic advice model allowing suitably qualified professionals to practise under a ‘no product recommendation’ environment would see advisers given increased ability to provide strategic advice without conflicts of interest. It would also address the false perception that financial advice is simply ‘selling products’ and in time would help to address the issue of trust in the sector.”

Maroney concludes: “A reimagined advice framework has the opportunity to be beneficial for all Australians. It will include more advisers in the profession, less regulatory impost, greater strategic advice and more accessible advice which is more affordable for consumers.

“We look forward to consulting with ASIC in their upcoming roundtables to work through our recommendations that include modernising Statements of Advice (SOA), reducing red tape where required to provide scoped advice, and exploring how ASIC can update its guidance to be more accessible, consultative and persuasive.”

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