Consumers need and deserve good advice but extreme consumer protections have stopped them from getting it, Fortnum’s Neil Younger writes.
Judging by the latest round of Quality of Advice Review (QAR) discussions and roundtables on Treasury’s Conflicted Remuneration proposals, some consumer groups and industry superannuation funds would rather consumers go without access to life insurance advice than for commissions to stay.
But consumers, the very people consumer groups represent and serve, need and deserve good advice.
Yet Treasury’s QAR Conflicted Remuneration paper found that the number of new life insurance policies issued since the introduction of the Life Insurance Framework had declined. The Australian Securities and Investments Commission’s (ASIC) file review also indicated “an increase in the age and wealth of clients that receive life insurance advice,” demonstrating that advisers are focused on “those with higher sums insured and higher premiums” because it is not economically viable to service ordinary Australians.
Rather than get hung up on details around remuneration and definitions, the financial services industry including consumer groups, super funds and regulators, first needs to agree that Australians, regardless of their account balance, should have access to good advice.
Let’s all agree that demand for personal advice is high and isn’t close to being satisfied.
From that premise, it’s hard not to embrace the changes being proposed by the review, which aim to make good advice accessible and affordable to all Australians, whether their needs are big or small, complex or simple.
The review and Michelle Levy have ambitiously tried to strike a balance between protecting and serving.
This is no easy feat.
There is usually a penchant for regulators and policy makers to focus on protecting, which inevitably comes at a cost to serving.
We have seen this dynamic play out in financial advice where the sharp focus on strengthening consumer protections has significantly diminished the industry’s ability to serve.
The process of giving advice has become so compliance-orientated and systematised that it has taken a form that is overly complex, costly and, therefore, largely irrelevant.
The result of having so many protection mechanisms baked in is two-fold: firstly, consumers are being forced to fit into a pre-existing mould (holistic, face-to-face and ongoing) and, secondly, personal advice has become so costly to deliver, only a privileged few can afford it.
But as Michelle Levy states in the QAR Consultation Paper: “consumers want good advice – not documents and processes”.
The review is proposing a different way of regulating advice.
It is proposing that many existing obligations, which prescribe process, be replaced with the simple requirement to provide good advice.
Basically, if the outcome is good advice, then the process of getting there is academic.
Similarly, so long as the outcome is good advice, it doesn’t matter who gives it and how they are remunerated.
Whether you agree in totality with the reviews proposals, it’s difficult to argue with Levy’s conclusion that some form of good advice is better than none at all.
Regulation can’t only be about protecting consumers from the myriad of things that can go wrong, it should also serve their needs, in recognition of all the things that can go right.
Consumer groups hell-bent on strengthening consumer protections should consider the millions of unadvised Australians and the piles of research that show people who get professional advice are better off.