Why Michelle Levy Seeks Financial Advice From Stephen Jones

Financial Planners

Labor’s Financial Services Minister Stephen Jones continued to describe the financial advice sector as a “hot mess” after taking office.

He received Levi’s final report in December and released it in February. But he also announced his intention to seek additional expert analysis to “stress test” the concept. Some of them are the least popular with consumer groups.

He clearly doesn’t appreciate Levi’s nagging now.

So while Jones describes the review as “thoughtful”, he also said it contained some recommendations that were “highly controversial”.

“We’re in no rush to make unthinkable reforms. That’s why we’re in the turmoil we’re in today,” he told Sky News.

Perhaps he is not referring to the reforms proudly introduced by the previous Labor government more than a decade ago. Created the “Future of Financial Advice” law designed.

These overdue reforms are the introduction of transparent fees for service as standard, rather than hidden “follow-on” fees that last indefinitely without most consumers even knowing they are still paying for the gravy train. We’ve restricted the worst abuses, including

This opaque system meant most financial planners relied heavily on compensation for product sales rather than providing independent advice. Banks were also making inroads into what they erroneously believed would become profitable new areas of wealth management expansion. They had largely withdrawn by the time of the Hein Royal Commission in 2018, but their ethical failures and inadequate remediation to customers were outlined in embarrassing detail.

The downside is that the regulation of financial advice and qualifications has become more and more stringent, causing thousands of advisors to leave the industry. And with a minority of Australians, about 10%, willing to pay for the privilege, the advice became increasingly expensive.

Labor did not dispute the view that an amendment was urgently needed. From the opposition, Jones promised to quickly reduce the burden of regulation that forces people to “jump crazy hoops.”

But Levy’s solution includes the demise of a key element of Labor’s original reform package.

This imposed legal obligations on all financial advisors to act in their clients’ “best interests”, including implementing various “safe harbor” measures to ensure compliance. . That required lengthy and costly advice that considered all the details of the client’s personal situation.

The only option is called General Advice, which forbids taking individual circumstances into consideration. However, this means that financial institutions are unwilling to risk violating strict distinctions inadvertently, so their usefulness is very limited.

Even the staggering growth of the nonprofit industry’s superannuation funds has led to more financial advice to members, despite the apparent need for more baby boomers to retire and seek help. Is not …

Most funds only offer the most general advice. This is because providing more in-depth personal advice is considered a service of no value to the fund and too costly for most members.

Mr. Levy agrees that consumers may require comprehensive or specialized advice that should be obtained from a professionally skilled professional. While the complexity of checking all “safe harbor” procedures is not required, there is still a legal obligation to act in the best interest of the client.

But, in her view, many consumers also want “contingent, simple, and limited advice” that they can get if they need it without paying the hefty costs of expert advice.

Consumer law provides adequate protection against such limited advice, especially when properly enforced by regulators, Levy said. As such, she recommends allowing financial institutions such as super funds, insurance companies, and potentially banks to provide personal advice, as long as it’s “good.”

“Good advice doesn’t mean ‘OK advice’ or ‘enough advice,’ it means what it says,” her report said.

According to her, the current system is inconsistent, rigid, and doesn’t even prevent consumer harm.

Many financial institutions and some of the larger superfunds believe this is a reasonable proposition. Especially when the usual alternatives are no advice at all, or come from unreliable sources on the internet or well-meaning but little-informed neighbors.

However, consumer groups argue that despite the reforms that have removed most of the fees, this represents a return to a divisive past.

A truce is unlikely any time soon. Jones said he would like to submit a proposal to the Cabinet to remove regulations that maintain consumer protection but do not protect consumers and increase the cost of advice.

What could go wrong?

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