Redefining the new era of financial planning to better protect consumers
The Financial Planning Association of Australia (FPA) has renewed its call for the law to be amended to rename the term ‘general advice’ to ‘product information’ or ‘strategy information’, to better protect the interests of consumers and promote confidence in the financial planning profession.
Marking the start of the 20th Financial Planning Week in Australia (5-11 October 2020), the FPA is recommending significant reforms that aim to streamline regulation of the financial planning profession as part of its five-year policy platform.
FPA CEO Dante De Gori CFP® said future reforms to consumer protection issues should focus on addressing known problems in the current law, and not limit its focus on layering additional regulation on top of the existing framework.
“While the recent reforms in regulation play an important role in protecting consumers, there has been an unnecessary level of duplicated red tape that will create a significant regulatory burden with no additional benefit to the consumers.
“We believe the best way to achieve the goal of enhancing consumer protection is through appropriate proactive regulation, rather than band aid consumer redress.
“There is a high level of confusion in the market, within industry, media, Government and consumers about the definitions and roles of financial advisers and financial planners, and those that sell financial products.
“Further, the COVID-19 pandemic has demonstrated the value of financial advice has never been more important now that Australia is officially in recession after 29 years.
“In this context, we support ASIC’s current project to replace the term ‘general advice’ with an alternative term so it is clear to consumers what is being offered – advice that does not consider one’s specific circumstances.
“In addition to amending the term ‘general advice’, where general advice is given, we recommend consumers must also be given a standard warning about the nature of the advice.”
Industry stakeholders in agreement
Many consumers are still having difficulties understanding the difference between personal advice and general advice which exposes them to a greater risk of poor financial decisions.
This is supported by multiple reports including the Financial Systems Inquiry final report, the Joint Parliamentary Committee on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and education standards in the financial services industry and ASIC have recommended that the term “general advice” to be changed so it accurately reflects what is being offered under this category.
“These changes are fundamental to proactive consumer protection and the future of the profession.” said Mr De Gori.
“While these standards have increased the quality of financial advice, they have also created an incentive for some individuals to pass themselves off as financial planners without complying with the relevant standards.
“2020 has been a year of reflection and learning, and there are a lot of key takeaways for how consumers can better manage their financial situations on either side of the pandemic. During these unsettling and challenging times, it is more critical than ever for the profession and regulators to better protect consumers”.