Key Points
Royal Commission and media uncovered significant wrongdoing in the financial services sector.
The resulting regulation has seen the departure of financial advisers and the hollowing out of services.
The Levy report recommends winding back some regulations to make advice cheaper and more accessible.
Just when those leaving the workforce, considering retirement, and the retired need it most, professional and affordable financial advice is getting harder to find. Only about 10 per cent of Australians, and declining, get financial advice.
Consumers are finding it too expensive and are reluctant to pay the thousands of dollars in upfront fees.
Meanwhile, qualified financial advisers are getting thin on the ground. Numbers have declined from about 30,000 to just 16,000 and dropping, servicing 25 million Australians.
The reasons have been sheeted home to federal government regulatory overreach. Faced with royal commission evidence of grave wrongdoing, successive federal governments have responded by imposing onerous and expensive regulations on the financial advice sector.
Consumer groups were pleased but financial services and independent advisers have voted with their feet, leaving the industry and leaving retirees to fend for themselves.
The former Coalition government appointed Michelle Levy, a partner at Allens, to undertake a review designed "to ensure Australians have access to high quality, accessible and affordable financial advice".
Her report was released recently, and predictably, despite her recommendations receiving backing from the financial services industry for reducing red tape, consumer groups are outraged.
The report found the regulatory framework for financial advice complex, and difficult to understand and comply with.
Levy says these defects impede consumers from accessing affordable and high-quality advice when they want and need it.
The report concludes that government ramping-up of regulation has not proved effective in preventing consumer harm, which was an objective of the reforms.
"The regulation has accumulated with rapid succession over a brief period in response to crises and scandals involving financial institutions and financial advisers with each one leading to more patching of the law. The result is not coherent, and it is not working," she wrote.
The report makes recommendations, which effectively would loosen the leash government has imposed. More on that later.
Alan Kirkland, CEO of Choice, complains that "such radical and untested changes at a time when global financial markets are unstable will be a disaster".
The minister responsible for considering the Levy report, Assistant Treasurer and Minister for Financial Services, Stephen Jones, is cautious, telling The Australian Financial Review he plans to get more expert analysis to "stress test" the concepts. "Levy might wonder just what she's been doing," the AFR writer asks, suggesting the government will shove the report onto a top shelf to gather dust.
The report states consumers want to be able to get financial advice as and when they need it. This will often be when they are dealing with their bank, superannuation fund or insurer. However, it asserts the current regulations make it difficult for "institutions to give their customers simple personal advice, and it makes it hard and expensive for financial advisers to give their clients the advice they want at a price they are willing to pay".
The report suggests banks and financial institutions may not be the bad guys they are made out to be: "[They] benefit from the financial products their customers hold, and, because of that, they should provide them with the advice they need about those products.
"The law should encourage them to do so in a way that is safe, but which serves the interests of consumers."
1. Loosen statutory duty
Levy's solution includes dumping one of the original reforms. This imposed a statutory duty on all financial advisers, requiring them to act in the "best interests" of their clients, including taking a range of "safe harbour" steps to ensure compliance. The changes also required highly detailed, lengthy, and costly statements of advice considering every aspect of a client's personal circumstances.
Levy argues existing consumer law offers sufficient protections and recommends allowing financial institutions like super funds, insurers and potentially banks to provide some personal advice if it is good.
"Good advice does not mean 'OK advice' or 'good enough' advice - it means what it says," her report stated.
2. Less expensive documentation
The law requires providers of financial advice to prepare documents their customers and clients pay for but, which Levy says, rarely want or read.
The report recommends removing most of this and instead requires advisers to ask themselves, and their customers and clients, how they would like advice to be provided to them.
Levy also believes there is a need for graded advice - from more specialist, expensive, thoroughly researched advice, which costs more and is the current requirement, to less expensive "incidental, simple and limited advice" that they should be able to get when they need it.
3. Superannuation has a role
Superannuation funds should be encouraged to give personal advice to their members. It also recommends allowing trustees of superannuation funds to exercise their powers in "ways they decide are best able to serve the interests of their members."
Levy says that at their core, the recommendations require financial institutions and financial advisers to ask themselves whether their financial advice is complete, accurate and fair, fit for purpose, provided with reasonable care and skill and, if they are acting for their client, in the best interests of their client.
She says her recommendations support the principles of the Hayne royal commission "and, if interpreted in light of them, they will require providers of financial advice to take responsibility for providing their customers and clients with the advice they want and need".
National Seniors Australia awaits the federal government's response to this report.
Read the report and recommendations.
