Australia’s financial advice industry is bracing for more proposed changes to approved product lists, remuneration and terminology following the Productivity Commission’s inquiry into the state of competition in the country’s financial system.
By mid-2020, the Commission said “general advice” should be renamed to something else so that when the term “advice” is used, it is not associated with “personal advice” or advice that takes into consideration personal circumstances. “General advice,” it said, is misleading, as first reported by Australian media outlet Financial Standard.
The “use of the term ‘advice’ should be limited to effort that is undertaken on a client’s behalf by a professional adviser,” the 686-page document said.
The PC also wants ASIC to assess the feasibility of financial planners providing advice on home loans and other credit products, in the hope of opening up competition with mortgage brokers in providing credit advice.
Advisers currently cannot advise consumers on specific credit products, but are permitted to provide general credit advice. Financial advisers must be licensed as an adviser under the Corporations Act as well as hold an Australian credit licence (under the National Consumer Credit Protection Act) to be able to provide specific advice on credit products.
Recommending trail should be banned and clawback restructured, the report reads: “All brokers, advisers and lender employees who deliver home loans to customers should have a clear legally-backed best interest obligation to their clients.”
Trail commissions earned by mortgage brokers – a point of significant debate over recent months – feature heavily in the findings.
The Productivity Commission also lashes the banks for flooding the market with similar products, ripping off loyal customers and drumming up new business with temporary and illusory benefits.
Further recommendations include the appointment of a Principal Integrity Officer (PIO) by all banks. The PIO would be obliged by law to “report directly to their board on the alignment of any payments made by the institution with the new customer best interest duty”.
The PIO would also have an obligation to report independently to ASIC in instances in which its board is not responsive.