The Financial Services Reform Act (FSRA) needs to be modified to include a definition of strategic advice, in order to truly separate product from advice and reflect the evolving nature of advisers' work, according to the head of an independant dealer group.
Currently the legislation, which is part of the Corporations Act, only refers to financial products.
"Financial planning doesn't necessarily mean product, therefore, we need the actual existing FSRA legislation to be tidied up before we move to the next phase of the Future of Financial Advice (FOFA)," MyAdviser managing director Philippa Sheehan told InvestorDaily.
"The first step to that is removing the product definition when it comes to advice because the lines are blurred between product advice and strategic advice and where that fits within the legislation."
The FSRA commenced on 11 March 2002, with a two-year transition period to 11 March 2004, but the financial planning industry's continual evolution has resulted in a need for ASIC to clarify and address what advisers actually now do, Sheehan said.
"What we're seeing with the market turmoil now is that advisers aren't actually giving a lot of product advice; they're actually doing a lot of strategy," she said.
"The question mark is then around: if it's not product advice and it is pure strategy, do we then even need a statement of advice?
"The obvious answer is yes but we get asked about this constantly in our compliance department, so I'm sure other licensees are having the same issues. It's never been addressed."
Sheehan said advice without the product component, strategic advice, must be acknowledged and defined in legislation ahead of FOFA developments, such as volume bonuses and grandfathering, in order for the industry to move forward.
"We need this strategy component to be very clear and not be just around the financial product.
"If we get the terminology right of what we do, we can be a much better industry because until we get this piece right, we're still going to be seen as product advisers."
