‘I’m struggling to see what I’m undoing’: Levy responds to negative commentary

“In answer to some commentary, I haven’t recommended the winding back or dismantling of FOFA and indeed I would say it’s one of the foundations upon which the recommendations sit,” Ms Levy began.

“But as hard as I tried, and I tried really hard, I have not been able to persuade CHOICE and consumer representatives that the recommendations are in fact good for consumers,” she noted.

The reviewer clarified that in her opinion, “CHOICE paints a truly terrifying picture of radical and untested changes”.

Quoting directly from CHOICE’s statement, in which the group asserts that Levy’s recommendations “will be a disaster for consumers, a picnic for lawyers, and lead to the next royal commission”, Ms Levy admitted that it was “really hard” for her to read these comments. She described the group’s media release as “high-handed” and expressed her dismay at its content.

“They really dismiss a lot of the arguments and reasoning in the report,” she evaluated.

What groups such as CHOICE failed to understand, she said, is that the QAR wasn’t a review into financial advice by financial advisers, instead “it was a review into the regulatory framework applying to the provision of financial product advice”. 

“Advice in the ordinary sense of the word is not a necessary component of financial product advice,” she explained.

“And the regulatory framework doesn’t distinguish between selling and advice, so this means that financial product advice ranges from advertising by financial institutions of their financial products right through to full financial plans prepared by independent financial advisers, and then everything in between,” she said.

This, Ms Levy said, is important when determining who should be able to give financial product advice and what duties should apply when they do.

In addition, the reviewer highlighted that financial institutions, including banks, superannuation funds, and insurers, frequently provide advice aimed at persuading customers to purchase their financial products.

While “this is a well-known fact”, the reviewer observed that it is often overlooked in negative commentary on the subject.

She noted, “vertical integration remains lawful and prevalent, despite its obvious implications”.

Her recommendations, Ms Levy said, would step up consumer protections, by requiring the financial institution to recommend a product to a customer “only if it meets the needs of that customer”.

“The customer should not need to go to a third person to decide whether that product is suitable for them.”

Ms Levy explained that while the current law divides financial product advice into general advice and personal advice and then regulates them differently, the law “permits and provides a real incentive” for financial institutions to use general advice to sell their products.

This, she noted, can lead to “really poor” customer outcomes.

“My recommendations would stop that,” Ms Levy said.

“My first recommendation is to expand the definition that we currently have of personal advice,” she said, noting that anyone that engages in a personal interaction with a customer “will give the customer personal advice”.

“This will expand the categories of conversation which are now treated as general advice into personal advice. This recommendation, married with the good advice duty is, I think, fundamentally important in protecting consumers from poor advice and the miss-selling of financial products,” she added.

“And so I recommended that a person who gives personal advice be required to give good advice.”

Returning to the negative commentary, Ms Levy said: “I struggle to see what I’m undoing”.

Ms Levy also commented on the intentions of the Financial Services Minister, Stephen Jones, to review the review. She revealed that during a meeting in Canberra last week, the Minister raised the matter with her.

“When I spoke to the Minister about this, he said he wants to stress test how it would be operationalised. He was trying to be polite, I think,” she said.

Last week, in a written statement, Ms Levy told ifa: “I hoped that the review did bring expert analysis to the area and so I do not think more analysis is required”.

“But I understand why the Minister would want to speak with people and to think about what the industry would look like if the recommendations were adopted,” Ms Levy said.

“I hope that having done that, he will be persuaded that they have real merit and will make good quality financial advice more affordable and more accessible.”