{"id":27321,"date":"2014-09-02T16:21:43","date_gmt":"2014-09-02T06:21:43","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=27321"},"modified":"2014-09-17T07:00:51","modified_gmt":"2014-09-16T21:00:51","slug":"labelling-of-advice-hot-topic-for-fsi","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2014\/09\/02\/labelling-of-advice-hot-topic-for-fsi\/","title":{"rendered":"Labelling of Advice Hot Topic for FSI"},"content":{"rendered":"

Changes to the way vertical integration and general advice are represented to financial consumers are among the most frequently addressed topics in the latest round of submissions to the Financial Systems Inquiry (FSI).<\/span><\/p>\n

Over 6,300 submissions have been received by the Murray Inquiry in its second phase of stakeholder consultation. While not all the submissions have been made public, clear themes are emerging. Among them are suggestions that the industry needs to address the labelling of some of its services.<\/p>\n

Riskinfo has summarised the key discussion points relating to advisers and insurance\u2026<\/p>\n

Vertical integration and \u2018independence\u2019<\/strong><\/p>\n

The FSI Interim Report asked for feedback on whether vertically integrated businesses created a conflict of interest.<\/p>\n

Westpac, NAB and AMP all used their submissions to highlight the importance of vertical integration in terms of keeping advice affordable.<\/p>\n

vertically integrated companies … have the resources … to provide their advisers with high quality professional development, education and training<\/h6>\n

AMP said: \u2018Only vertically integrated companies have the financial capacity to invest in the development of new and high quality financial advice solutions for consumers, which ensure strong competition and innovation in the market. Vertically integrated companies with significant capital strength have the resources and brand strength to provide their advisers with high quality professional development, education and training.\u2019<\/p>\n

Further, AMP argued that there was no evidence that \u2018independent\u2019 advice is of any greater quality than advice from other business models. \u2018Indeed advice from \u201cindependents\u201d has proved to be the most damaging to consumers and was the driver of the original Ripoll Inquiry,\u2019 AMP said in its submission.<\/p>\n

Westpac added that \u2018\u2026existing mechanisms comprehensively regulate any perceived conflicts of interest arising from vertically integrated business models.\u2019<\/p>\n

In contrast, the Boutique Financial Planning Principal\u2019s (BFP) Group, which represents small, non-aligned licensees, called for a ban on vertical integration:<\/p>\n

\u2018There is clear evidence that consumers are often unaware that their adviser is licensed through an AFSL wholly or partially owned by a product issuer. A simple legislative fix is to require such disclosure in all public documents and marketing material, including advertising, something the BFP has been advocating for over the last decade.<\/p>\n

\u2018In the absence of any reduction in regulatory burden we would ask that the cross\u2013subsidisation of advice businesses owned or aligned with product issuers be banned.\u2019<\/p>\n

disclosure of whether an adviser is aligned or independent must be very clear and upfront to consumers<\/h6>\n

The Self-managed Superannuation Professionals Association of Australia (SPAA) offered a slightly more measured approach, suggesting any consumer confusion could be addressed through disclosure:<\/p>\n

\u2018In order for disclosure to be effective in better distinguishing between independent and aligned advisers, very clear and effective categories need to be constructed to \u201clabel\u201d advisers. Also, disclosure of whether an adviser is aligned or independent must be very clear and upfront to consumers. Otherwise, disclosure will have limited effect in raising consumer awareness as to whether an advisor is independent or not.\u2019<\/p>\n

There was widespread support for an enhanced adviser register, with most agreeing that the adviser\u2019s employer and the owner of the licensee should be disclosed.<\/p>\n

General Advice terminology<\/strong><\/p>\n

Submissions also addressed the terminology used to refer to the types of advice provided, and whether consumers were sufficiently financially literate to understand the differences.<\/p>\n

The Financial Services Council (FSC) said it was supportive of a new, clearly defined advice segments (between personal advice, general information, factual information and intra-fund advice), to better explain the different ways in which advice is provided.<\/p>\n

\u2018This will provide consumers with a better understanding of whether the information they are receiving is factual information or general information (which does not take into account a client\u2019s personal circumstances) or personal advice (which does),\u2019 the FSC stated.<\/p>\n

The FSC and SPAA both recommended introducing alternative competency frameworks for the different types of advice segments.<\/p>\n

The BFP Group said it supported removing the term \u2018general advice\u2019 and replacing it with \u2018product information\u2019, adding it should be accompanied with mandatory warnings that personal advice is not being provided and that the best interests obligations do not apply.<\/p>\n

Westpac noted that it was appropriate to rename \u2018general advice\u2019, but said it did not support the introduction of terminology based around \u2018sales\u2019.<\/p>\n

\u2018Much of the information provided via general advice is factual information about a product or a service and is contained in regulated disclosure material. Westpac therefore does not believe the characterisation of this information as \u2018sales\u2019 is appropriate.\u2019<\/p>\n

Underinsurance<\/strong><\/p>\n

The FSI Interim Report acknowledged that Australia has an underinsurance problem, and asked for suggestions to address this.<\/p>\n

TAL made a number of recommendations in its submission to the Inquiry, with the aim of providing greater flexibility for consumers.<\/p>\n

Among them was a requirement for a \u2018key fact sheet\u2019 to be provided to each prospective life insurance customer, outlining relevant information about the type of life insurance being sought.<\/p>\n

A key fact sheet enables consumers to compare products simply<\/h6>\n

\u2018A key fact sheet enables consumers to compare products simply and helps to make it easy to understand what can sometimes be complex products. For life insurance in particular, these fact sheets should compare stepped and level premiums so consumers better understand the costs involved over the longer term,\u2019 TAL said.<\/p>\n

TAL was joined by ANZ and the FSC in a call for a more streamlined regulatory framework for the entire insurance industry, to enable life insurers to provide alternative benefits such as rehabilitation services.<\/p>\n

\u2018This would improve outcomes for individual consumers and, over time, improve life insurance affordability and take-up by reducing pressure on premiums,\u2019 said ANZ. \u2018This would involve changes to the Private Health Insurance Act 2007 to allow life insurers to compensate for medical expenses for rehabilitation after accident or illness.\u2019<\/p>\n

The FSC and Suncorp Life argued for government-led incentives to increase the take-up of private disability insurance.<\/p>\n

\u2018Deloitte research suggested that the introduction of a \u201cDisability Levy Surcharge\u201d (DLS) would perhaps be the strongest underinsurance policy lever that would push individuals to take up private disability cover,\u2019 the FSC said.<\/p>\n

\u2018A DLS would be a disincentive or a \u2018stick\u2019 for those earning over a specified income, in the base case over $88,000, to take out private disability insurance cover.\u2019<\/p>\n

Suncorp Life also suggested that improvements were needed to \u2018\u2026ensure there is transparency of the product assessment process undertaken by ratings houses.\u2019 In his submission to the FSI, Suncorp Life CEO, Geoff Summerhayes, said: \u2018I recommend Government and the life insurance industry focus on simplicity and value in the delivery of products and services to consumers. This includes development of a simplified life, trauma, total and permanent disability (TPD) and income protection product assessment questionnaire that could be accessed by consumers through the ASIC MoneySmart website. I also support a move towards general categorisation of products.\u2019<\/p>\n

Finally, ANZ recommended introducing a limitation on claims for life insurance, improving the training and education of underwriters and claims assessors, and the development of more affordable, technology-enabled products.<\/p>\n

Increasing the minimum education standards applying to advisers will benefit consumers and the industry<\/h6>\n

Higher advice standards<\/strong><\/p>\n

Despite having yet to announce plans to increase minimum education standards for its network of aligned financial advisers, ANZ joined Westpac, CBA and NAB in calling for improved adviser competence levels.<\/p>\n

ANZ said: \u2018Increasing the minimum education standards applying to advisers will benefit consumers and the industry. We support continued work on a holistic minimum education and competency framework for advisers including through the establishment of a national exam. An independent body should manage the development and running of the exam. The framework should include continuing education requirements as occurs in many other professions.\u2019<\/p>\n

TAL also reiterated the professionalism message, saying until standards improve and financial planning becomes a profession, planners will continue to be viewed poorly by the public. TAL said it would continue to promote increasing standards of the advice industry, and had actively promoted this view through its own advice group, Affinia Financial Advisers.<\/p>\n

Legacy product rationalisation<\/strong><\/p>\n

The issue of how to manage legacy products, and the subsequent drag on the funds management sector, was raised in the FSI Interim Report.<\/p>\n

The Australian Prudential Regulation Authority (APRA) acknowledged the recommendations of the Banks Report, which suggested that a mechanism for rationalising legacy products should be developed by the government, APRA, ASIC and industry stakeholders. APRA said it would support the resumption of work on this issue, adding that \u2018\u2026the problem associated with legacy products will arguably become greater the longer the issue remains unaddressed.\u2019<\/p>\n

\u2018It would help mitigate the increasing operational risk that such products create in the superannuation and life insurance industries, as well as reduce the operational costs that financial institutions, and ultimately consumers, are currently incurring,\u2019 the APRA submission said.<\/p>\n

AMP said it was supportive of a process to facilitate product rationalisation, but legacy products should first be exempt from any further regulatory change.<\/p>\n","protected":false},"excerpt":{"rendered":"

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