ASIC’s consultation paper on scaled advice risks confusing members of the public, many of whom do not know the difference between comprehensive advice and the scaled version, the heads of two of Australia’s main advice bodies have said.
In an effort to get more Australians to plan for their financial future, the government wants the advice industry to offer cheaper, piecemeal guidance to consumers as well as full-blown, holistic planning.
The latter can include insurance, estate planning and other types of advice in addition to setting up and monitoring investment portfolios.
Association of Financial Advisers (AFA) chief executive Richard Klipin said aspects of ASIC’s scaled-advice consultation paper, known as CP164, were positive.
“The AFA is very interested in any initiative that is going to grow the advice from two in 10 [Australians who use a financial adviser] so that more Australians have access to quality advice,” Klipin said.
“That’s the upside. CP164 will deliver more advice to more Australians at a more affordable price.”
FPA general manager of policy and government relations Dante De Gori said a key question was who would be doing the scaling.
“In a true best-interest sense, the client needs to scale the advice, not the adviser,” De Gori said.
“If the adviser drives the process to reduce their requirement to talk about other things, are they acting in the client’s best interest?”
He said some advisers would also have a duty to inform clients if they lacked qualifications or competency in a given area.
“The point is you don’t want the client to assume they’re getting holistic advice when they’re only getting scaled advice,” he said.
The AFA believed the measures risked devaluing advice and confusing consumers in the process, he said.
“The downside and the danger is that quality and full advice will become devalued. Consumers may well get confused as to what’s full, holistic advice as opposed to what’s scaled advice,” he said.
“They may well get confused as to who’s actually delivering that advice, what are the skills and the competencies of an adviser who may deliver scaled or simple advice versus those who deliver comprehensive advice.”
“Our response to CP164 will be framed in teasing out some of those themes.”
ASIC’s industry consultation process closes on 8 September.
The FPA said CP164 was incomplete because the best-interest test, part of the government’s planned Future of Financial Advice (FOFA) reforms, was missing.
By way of example, De Gori cited the example of an adviser working for a superannuation fund.
“By definition, they’re only able to provide scaled advice, but the client might not know that. They might think they’re getting holistic advice,” he said.
“This is where it gets a bit tricky because how can you provide guidance on scaling your advice when you’re missing a fundamental component of the best-interest duty,” he said, referring to the draft legislation on an adviser’s obligation to act in the best interest of clients.
