AIOFP backs third-party evaluation of QAR

Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston said that the financial services industry is a “very complex and Gordian environment”, and backed the third-party investigation, regardless of how long it may take.

“The next ministerial direction is critical to consumer protection, industry structure, and pricing going forward, the minister must get it right,” Mr Johnston said.

“The minister has demonstrated a great deal of respect and courtesy towards [Michelle] Levy from the outset by not commenting on any aspect until the final report is completed. It is time for Ms Levy and her supporters to demonstrate similar respect and reciprocation.

“Time should not come into it, getting it right is the crucial factor.”

Mr Johnston said that as he sees it, there are three opinions: the Joint Associations Working Group (JAWG) supporting QAR/Ms Levy in its entirety, the AIOFP wanting a hybrid version to protect consumers/advisers, and CHOICE defending consumers.

“The QAR/Levy option of reducing consumer protection and giving back legal flexibility to the institutions is flawed in our view,” he said.

“CHOICE are understandably all about consumer protection [which includes advisers in this cohort] and we believe our solution of not compromising consumer protection but allowing all stakeholders to operate adequately and fairly within the system is feasible.

“The AIOFP does not support the Levy solution for one key reason, it dilutes protection for consumers by allowing the institutions to operate under a ‘good advice’ environment, not the more stringent ‘best interests’ duty.

“The AIOFP supports CHOICE and its consumer-protection-comes-first stance.”

Citing the financial services royal commission, Mr Johnston said the AIOFP is of the view that institutions should stick to what they do best, because they are “not very good at wealth management or financial advice”.

“If they want to offer internal financial products to in-house customers, we agree they do need a workable and simplistic solution,” he said.

“But we should not ‘throw the baby out with the bath water’; diluting a best interests duty for consumers is counter intuitive to what all stakeholders should be upholding but often neglect — protecting consumers at all costs.

“‘Good advice’ is good for only one stakeholder and its certainly not consumers, we don’t want to return to the bad old days of institutions masquerading as ‘independent’ advisers confusing consumers.”

The AIOFP’s solution is to split the financial services sector into two categories: independent advice and product manufacturing.

“Product manufacturers should be permitted to have internally trained ‘factual information staff’ enjoying legislative carve out from the best interest duty to give information [not advice] to in-house clients. This cohort should be classified under product manufacturing,” Mr Johnston said.

“Independent advisers must comply with the full extent of the law including acting in the best interests of consumers naturally under the independent advice category.

“This scenario eliminates the dangerous outcome of having two classes of financial advisers — independent professionals operating under a best interests duty and a cohort of conflicted salespeople ‘flogging product’ and confusing consumers with a ‘good advice’ effigy.”

Mr Johnston also backed carve outs for accountants and a separate category for risk advisers within the independent advice category, adding that the split system would greatly benefit super funds.

“If a super fund only has to employ trained staff under product manufacturing to give intrafund advice, the prohibitive cost of employing multiple financial advisers, compliance infrastructure, and AFSL risk for trustees are greatly mitigated,” he said.

“The most efficient advice strategy is to outsource the service to the independent sector on a fee for service basis alleviating the dubious ‘fee for no service’ optics of all members funding a service that only less than 10 per cent utilise.”

Mr Johnston finished with a shot across the bow of QAR: “The QAR concept is ineffectively and inappropriately designated in our view; it should have been termed the Reducing the Cost of Advice [RCA] Review.”

This is the latest salvo in the AIOFP’s ongoing campaign against QAR, most recently its initial response to the final report, referring to the review as a “waste of nine months”.