Financial advice should be categorised as either general information or personal advice and its details outlined in scaleable letters of advice that contain only the information needed to make an informed decision, the Financial Services Council (FSC) has recommended.
The FSC made the call for a streamlined approach to advice and its documentation as part of a new paper, “Affordable and Accessible advice: FSC Green Paper on financial advice”, which contains seven recommendations it claims will reduce the cost and complexity of advice.
The paper noted that while the goal of regulation was to protect consumers, too many layers had been added to that approach and any future policy reforms should strip back those layers to create a new model of advice with simpler definitions of advice, less complex documentation, a single compliance benchmark and principles-based regulation, while maintaining the current education model and adviser licensing regime.
To this end, the FSC recommended a simplification of the definitions and classifications of financial advice into general information – which would be general advice that does not take into account personal circumstances – and personal advice, which would be further broken down into simple, complex and specialised advice according to the needs of the client.
This advice would be transmitted in a letter of advice covering the advice sought, the relevant circumstances of the client and the recommendations made and the rationale for them, and would replace Statements of Advice (SOA).
The paper added it would be a scalable document as the “information that an adviser must keep on file would be based on what is required to justify the advice given in the event of an audit or claim”.
The FSC also called for the removal of safe harbour steps to meet the best interests duty – introduced as part of the Future of Financial Advice reforms – and their replacement with the Financial Adviser Standards and Ethics Authority Code of Ethics as the “primary instrument and single source of truth for determining compliance with the best interests duty. This should apply to all forms of advice”.
Among the changes, it called for the retention of the existing education requirements and professional standards regime, but suggested those providing general information be properly educated under the model, albeit to a lower level than those providing any form of personal advice.
FSC chief executive Sally Loane said the “bold” proposals in the paper had been developed with the body’s advice licensee members and put forward “fundamental changes” to the legislative and regulatory framework around financial advice.
“Our aim with these proposals is to lower the cost of providing financial advice to make it simpler for consumers to understand and access, all without undermining the quality of advice or eroding important consumer protections,” Loane said.
The paper, which is based on research from Rice Warner and consumer testing by research agency Pollinate, is open to industry and public feedback until 1 July, with the FSC planning on a further paper on the issue later this year.
