The head of a financial services research house has warned the proposals from the Quality of Advice (QOA) Review for deregulation in the provision of general financial advice could result in unintended adverse outcomes for consumers.
“While we are not providers of personal advice, we feel that the replacement of best interest obligations with [requirements] to provide ‘good advice’ may have the unintended consequence of lowering the quality of advice to consumers and the standards of advice across the industry as a whole,” Zenith Investment Partners chief executive David Wright noted.
Further, Wright took the opportunity to emphasise the importance select services currently play in the provision of general advice under the current standards.
“In particular, quality product research and screening for advisers and their clients is a critical market function. This will continue to be the case as the supply of product options and manufacturers for investors inevitably expands. This view is consistent with ASIC (Australian Securities and Investments Commission) Regulatory Guide 79 and the requirements it places on research report providers,” he said.
“A regulated approach to investment product and superannuation fund research and delivery, together with the consumer protection measures noted in the QOA review recommendations, will afford consumers (and their advisers) stronger protections and further support the delivery of quality advice.”
At the same time, Zenith Investment Partners general manager Ian Fryer endorsed the decision to halt the performance test for choice products under the Your Future, Your Super legislation on the basis of the unplanned outcomes it has created.
“There have been a number of unintended consequences of the proposed test. A number of funds have been forced to adopt a shorter-term focus to ensure they pass the test. This has often been accompanied by less portfolio diversification to better track the test’s benchmarks and unfortunately this is the time in the cycle that diversification is so critical,” Fryer noted.
“In addition, many choice products are ill-suited to assessment using the standard benchmarks and we believe it’s better to come up with a test that caters for the full breadth of choice investment options.
“The test should include a range of different metrics that provide more information on performance over various periods, risk-adjusted returns over different timeframes and an administration fees metric. This would provide a much fuller picture of overall performance.”