Chair of the Quality of Advice Review Michelle Levy has defended the recommendations made in her final report, released last week, stating the changes suggested will not tear down the advice framework that has been established via Future of Financial Advice (FoFA) legislation.
“In answer to some commentary I haven’t recommended the winding back or the dismantling of FoFA [legislation] and indeed I would say it is one of the foundations upon which the recommendations sit,” Levy told delegates at the Actuaries Institute Financial Advice Twilight Seminar held in Sydney yesterday.
With regard to continuing concerns over vertical integration she pointed out the practice is legal and still exists and as such requires a different approach to managing it than has been tried in the past.
“As I said in the report it’s not feasible and it’s not desirable in my view to separate the sale of a financial product from the issuer of a financial product,” she noted.
“A financial product doesn’t sit on a shelf waiting to be acquired, it’s created by the legal relationship between the customer and the financial institution.
“There’s an invitation by the institution to the customer to apply for a product, the customer replies and then the institution accepts. That’s when the product is issued.”
According to Levy the financial institution, as part of the process of this transaction, has an obligation to tell the customer about the product, in the form of a product disclosure statement, and whether the offering might suit the client’s needs.
In addition she recognised steps have already been taken to make adhering to these principles more robust and that her recommendations have been made to build upon this existing compliance activity.
“I don’t think financial institutions should be selling product to a customer for whom it is unsuitable. Now the Design and Distribution Obligations go a long way to addressing this but the recommendations I have made will go further,” she revealed.
“They will both require and make it easier for the financial institution to recommend a product to a customer only if it meets the needs of that customer. The customer should not have to go to a third person to decide whether the product is suitable for them.”
Levy was responding to criticism of the QAR report from consumer groups, in particular comments from Choice chief executive Alan Kirkland, who described the recommendations as “a recipe for another royal commission”.
The Assistant Treasurer and Minister for Financial Services Stephen Jones released the report last week.
