AIOFP: Good advice has echoes of s923A

AIOFP executive director Peter Johnston has claimed that the “current push by the institutional lobby to eliminate the best interests duty in favour of a good advice concept has chilling similarities to the original intention and devastation of the s923A legislation in 1997”.

Providing background on the s923A legislation, Mr Johnston drew a parallel that the goal is to make all advice look the same to the consumer.

“During the 1990s, the percentage of financial advisers aligned to the institutions were well over 70 per cent of the total advice community, something the institutions did not want publicly exposed,” he said.

“To ensure institutionally aligned advisers did not get ‘discriminated’ against by consumers for their conflicts, the institutional lobby campaigned to get the very restrictive parameters of s923A legislation in place.

“Until FOFA changes in 2012, product commission was the most prevalent way for advisers to get paid for dispensing advice to consumers. With s923A stipulating that the term ‘independent’ can only be used if no commission was received by the adviser, it literally precluded over 99 per cent of the advice community from using the term – essentially making ALL advisers to look the same to the eyes of consumers.”

Mr Johnston added that the Australian Securities and Investments Commission exacerbated the problem by allowing institutionally aligned practices to operate under “independently” sounding names, adding it was this “gross manipulation of the law and no Canberra representation of independently owned advisers that brought the AIOFP into the market in 1998”.

He also pointed the finger at the Financial Services Council and the Financial Advice Association Australia (FAAA), lumping them together as part of the institutional lobby looking to replace the best interests duty with a “good advice concept that allows institutions to operate their conflicted business models in a diluted legal environment and critically, it will make all advisers ‘look the same’ under the law”.

“This is not a favourable outcome for consumers on both fronts,” Mr Johnston said.

“Once the parameters of a good advice concept are known, it may then be appropriate to be applied to the minister’s preferred model of internal staff dispensing product information to consumers in a compromised environment.

“We believe independent/independently owned advisers should operate under a best interest duty to protect consumers from market conflicts and allow these advisers to professionally differentiate themselves for consumer choice and consideration.

“We also believe todays more educated consumer will appreciate the advantages of dealing with an adviser bound by a best interests duty.”