Outcomes should define new advice model

The definition of simple advice the proposed ‘new class of adviser’ (NCA) will be able to provide should be based around harm minimisation and consumer benefit rather than a specific set of products or services, the Financial Advice Association Australia (FAAA) has stated.

Addressing government plans to move forward with the NCA, as announced by Financial Services Minister Daniel Mulino on 19 August, FAAA chair David Sharpe said the professional body had put forward some suggestions for how they could provide advice, given they will have lower education standards and initially only offer advice to super fund members and life insurance customers.

“We have presented a couple of different frameworks for how they could do it, not necessarily where the line is, but how you would get [to where advice becomes complex] and there are different ways of looking at it, such as the minimisation of harm to consumers,” Sharpe said during a media briefing today.

“If it’s an existing product provider talking to an existing client about an existing product, the minimisation of harm is already there because they are not selling en masse to people that it’s not appropriate for.

“So we are supporting the new class because it is not encouraging the worst parts of vertical integration that cause harm.”

He pointed to retirement as a key area where the association’s framework should be applied, particularly around the transition from accumulation to pension phase for super fund members.

“I would strongly argue that’s complex advice because it’s not just about saving tax, that’s the easy part, but it also impacts their estate planning, cash flow and potentially their Centrelink entitlements, and if you have only trained in super, you don’t know the rest of those implications,” he added.

“For a single issue, such as if a member can make a co-contribution and it’s going to be a $500 benefit to the client, they’re not going to be able to pay a financial adviser $3000 to get a $500 benefit. That doesn’t seem to make sense and as an adviser I want to have someone to refer that question to also.

“In defining that scope, we need to have consumer harm at the heart of it, but also the consumer benefit because you don’t want to protect them so much they never get the benefit, and finding that balance along the way is the lens that we take.

“We can always expand it later, but you’re never going to get the genie back in the bottle if it starts too complex, but you can always release it if it’s doing a good job.”