The Australian Securities and Investments Commission (ASIC) has launched a consultation exercise to understand the impediments to providing affordable and limited advice that ASIC and industry are able to address.
A particular focus of this exercise is on promoting access to quality ‘limited advice’. ASIC says that all personal advice can be scaled up and down to cover all areas relevant to the client, or one or some of the areas relevant to the client. ‘Limited advice’ is personal advice that does not cover all areas that are relevant to the client. It is also known as ‘scaled’, ‘piece-by-piece’, ‘single issue’, ‘modular’ or ‘episodic’ advice.
In this connection, ASIC has released a consultation paper titled “Promoting access to affordable advice for consumers”. Feedback on the industry’s experience in providing limited, digital and strategic advice is of particular interest.
The financial advice industry has undergone considerable change in recent years. Many large financial institutions have either sold or reduced their financial advice businesses. At the same time, a number of financial advisers have either left, or signalled their intention to leave, the industry.
As of 5 November 2020, there were 21,284 current financial advisers on the Financial Advisers Register (FAR). This is approximately 14.6% below the long-term average (of 24,930) prior to 1 January 2019 when many of the reforms in the Corporations Amendment (Professional Standards for Financial Advisers) Act 2017 commenced.
The reforms aim to raise the education, training and ethical standards of financial advisers who are authorised to provide personal advice to retail clients on more complex financial products.
The reduction in the number of financial advisers has led to widespread concern that consumers may find it difficult to access good-quality affordable personal advice.
Previous ASIC research into the demand and supply of financial advice highlighted that many consumers preferred receiving piece-by-piece or limited advice rather than comprehensive advice.
It was found that people tended to get financial advice or considered getting financial advice due to specific triggers. For example:
(a) having recently reached a financial goal and wanting to take the ‘next step’;
(b) beginning a new life stage (e.g. starting a family or retiring); or
(c) wanting advice to help them make a specific decision (such as whether to use their savings to renovate their home or invest).
Consumer research indicates that many consumers prefer (and would benefit from) receiving limited advice, rather than comprehensive advice.
However, ASIC says that it has been told that, due to the uncertainty about providing limited advice, some advice licensees have restricted their financial advisers from providing limited advice to consumers. For example, recent engagement with the industry tells ASIC that there are concerns about compliance with legal obligations, including the Financial Planners and Advisers Code of Ethics 2019.
ASIC uses the term ‘limited advice licensee’ to describe individuals, companies and other firms that hold an Australian Financial Services (AFS) licence that authorises them to provide only one or more of the following limited financial services:
• financial product advice about:
− a self-managed superannuation fund (SMSF);
− a client’s existing superannuation holdings, to the extent required for making a recommendation to establish an SMSF or providing advice to a client on contributions or pensions under a superannuation product;
• ‘class of product advice’ about:
− superannuation products;
− simple managed investment schemes;
− general insurance products;
− life risk insurance products;
− basic deposit products; and
• arranging to deal in an interest in an SMSF.
Submission of feedback is due by 18 January 2021.