‘Too scared to ring them’: Institutions need ability to supply simple financial advice

On the latest episode of The ifa Show, managing director of WT Financial Group Keith Cullen argued that financial institutions should be able to give customers basic advice without the need to introduce a new class of adviser.

“We’ve made various submissions over the last 12 months or more to both the QAR and also to Treasury and the minister’s office in response to the QAR on this particular matter,” Cullen said.

“And what I’d say to you is there is an absolute need for product manufacturers, product providers, the super funds, insurers, et cetera, to be able to talk to their members, to their policyholders about simple financial advice needs without being concerned that they’re going to fall afoul of providing personal advice other than with qualified advisers.”

In 2016, the Australian Securities and Investments Commission (ASIC) alleged that Westpac and BT Funds Management had breached the best interests duty and violated its AFSL conditions by providing personal advice to its customers.

When the case was brought before the Federal Court in 2019, it ruled in favour of Westpac and BT Funds Management, finding that they had provided general advice, not personal advice, to customers.

Later that year, ASIC successfully appealed the ruling, with the Federal Court finding that Westpac and BT Funds Management had provided personal advice to 14 of its customers.

Referring to this case, Cullen explained that financial institutions are now unable to offer assistance to customers in need, fearing legal ramifications similar to the Westpac case.

“One of the retail super funds told us last year, I forget the exact numbers, but it was more than 10,000 members that they had out of their cohort of nearly a million members who were in their seventies, they knew had not been contributing for a long period of time, were still in accumulation phase, and had not nominated to go into pension phase, and they were too scared to ring them,” he said.

“You can trace it back to the Westpac ASIC case around general advice and it’s made everybody paranoid. Now, that’s a ridiculous scenario for us to be in, and that’s not helpful for consumers or product providers or the profession more generally. So, we’ve always been very supportive of a mechanism to allow product manufacturers to be able to talk directly to people.”

Cullen argued that instead of introducing a new class of advisers to work in institutions, the government should have amended the legal definitions for general and personal advice.

“One of the key submissions we made is, we thought Levy’s proposal around non-relevant providers and good advice and all the rest of it was interesting, but completely unnecessary. The simpler fix would have been to go back and amend the law around general advice to negate that flawed Westpac decision,” he said.

“We argued that the simplest way to fix it was to redefine general advice as being about what you wanted to say or what the consumer wanted to know, rather than it being about what you knew about the consumer.

“We thought that would have been a simple fix and a much quicker and easier way to get to Levy’s outcome of broadening the availability of advice.”

He added: “But here we are. Tranche two is coming. It’s going to introduce a ‘qualified adviser’.”