Judith Fox, CEO, Stockbrokers and Investment Advisers Association
There is no dispute that access to financial advice has become extremely difficult for the majority of Australians, with only ten per cent now receiving financial advice.
The independent Quality of Advice Review led by Michelle Levy proposes substantial change to the regulatory framework to better enable the provision of high quality, accessible and affordable financial advice for retail clients.
She notes that consumers want good advice and proposes that the content or output of advice should be regulated, rather than the processes and disclosures advisers undertake, while maintaining robust consumer protections.
Stockbrokers do not want to want to squander this important opportunity to reset the compliance obligations. Unless the prescriptive and expensive advice regulations are reformed, the consensus is that the majority of consumers will be left with ‘no advice’. Brokers support proposals that make it easier for their clients to get the advice they want on listed securities in the form they want.
Of significant interest is the proposal to abolish general advice from the regulatory framework. The proposals paper states that clients struggle to understand the meaning of the term general advice. The paper argues that providing a recommendation or opinion, which is what general advice must do, would come within the new expanded definition of personal advice.
Stockbroking firms, whether full-service or online, provide good quality general advice as a key part of their services.
Let’s take research reports on listed securities, for example. They are valuable intellectual property — indeed, at times the research analyst may know more about the company or sector than current management, given their ongoing analysis over many years, while C-suite tenure has been decreasing. Research reports contain a recommendation to ‘buy’, ‘sell’ or ‘hold’ a security and are valued by retail clients, but they are not personal advice. They go to all clients and are certainly not geared to their individual financial circumstances, which is the regulatory obligation on the provision of personal financial advice.
Whether research prepared by an in-house research team that is distributed by a broker to all its clients — even with an email addressed to each individual (after all, everyone has a CRM) — would fall into the category of personal advice or not is one question requiring clarity. Would it only be personal advice if the broker made a personal recommendation to their client based on the report?
Another proposal is to replace the ‘best interests duty’ with an obligation to provide ‘good advice’, being advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time it is provided. It would apply regardless of whether the advice is provided by an individual, an algorithm or a digital advice service. The relevant question will be: ‘If my client follows my advice, are they likely to benefit?’.
While full-service brokers would remain subject to the existing education standards and the Code of Ethics, which requires advisers to act in the best interests of clients, the question here is who will determine what constitutes good advice.
It is business as usual while these proposals are considered. It is important that perfection is not made the enemy of the good. The goal should be to increase not just the quality, but also the quantity of advice that is available to Australian consumers. We know that Australians are keen on investing in equity capital markets. It is important that any regulatory reform results in more consumers gaining access to what they are looking for, whether it is called advice or not.
This article was first published in the Australian Financial Review on 22 September 2022.