Quality Advice Review: Will a two-tier advice system work?

A key point made by Paul Barrett in a recent article (“Don’t mind the gap: Why a two-tier advice system will work“) lies in the comment, “The bigger the gap the better, as seen in the UK’s regulatory model where there are independent advisers and restricted advisers, with clearly defined roles and labels.”

Further commentary in the article raises the idea that “Product issuers will be able to better serve their customers by confidently answering personal product-related questions.”

History tells us we need to be cautious when it comes to product-led advice. Very few doubt the Banks and major financial institutions will come back into financial advice in a big way over time – the key will be how and at what speed, based on the legislative landscape.

Industry is adept at “labelling” employee roles so that to the lay person could be mistaken or confused “… between (what are) relevant providers (financial advisers) and non-relevant providers (customer service representatives)”.

The safety net posited by the QAR interim report is that industry will act responsibly because it will be required to do so. History tells us the reality can sometimes be very different.

The Banking Royal Commission highlighted that profit, greed, and personal gain were considered more important than the needs of clients who were simply “numbers” and not people. The financial rewards fort those working in the financial services can sometimes cloud the judgement of individuals and result in “ethical fading” occurring at a systemic level.

The Banking Royal Commission highlighted many instances of corporate failure but not so many of individuals being held to account. For many mis-doers, they simply pocketed the salaries and annual bonuses, and moved on.

When the future generation of employees look back at the Commission’s outcomes will they be deterred, or will they be willing to roll the dice for personal gain? Again, history shows us that it only takes a few like-minded individuals, well-placed in such organisations, to cause financial hardships to ordinary Australians.

It’s important to also consider the indirect consequences to those not directly involved – for example, shareholders of AMP have seen their own personal wealth decimated as the share price slide from $5.39 in March 2018 to its current level of $1.19.

There is no doubt that some of the proposals in the interim QAR report mean “Consumers will get better access to affordable personal advice. It may be limited in scope and related only to the product they are already in, but it will meet a need, at a point in time.”

And therein lies the perverse complexity of what has been proposed.

Financial advisers, who carry the industry as a professional, need to carefully ask themselves where they want the professional to head and make their voices heard to maximise the likelihood it evolves in line with the intent that underpins the “good advice” principles.

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Fourth Line is a rigorous RegTech risk management and compliance system for advice practices, dealer groups and other wealth management participants. Fourth Line uses algorithmic approaches to simplify the complexity in advice reviews whilst maintaining human oversight, empowering compliance teams to coach and develop strong advice behaviors through data driven insights from advanced analytics for adviser, practice/dealer group and industry benchmark comparison with centralised document storage and access to meet regulatory needs. 

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