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Stop calling product recommendations advice

Would you regard a product recommendation from a Toyota dealer or Apple store as advice? Do you think bias makes a recommendation less valuable? Do you think it matters?

Consider the "advice" members of Australia's second largest superannuation fund - QSuper - will now receive after the fund dumped their "holistic advice" offer. Nearly 600,000 QSuper members will now only receive superannuation "advice" from their superannuation fund. They are welcome to obtain 'holistic advice' elsewhere. What's wrong with that? Nothing, according to QSuper chief executive Michael Pennisi because the decision was based on what they described as "member needs."

As strange as it sounds, only 1% of QSuper's clients have sought holistic advice.

This might be because QSuper provides non-holistic advice for free, while charging members for so-called holistic advice. So, a recommendation to use one of QSuper's products is free (i.e. cross-subsidised) while holistic advice will cost up to $7000.

It should be noted QSuper's members are "very satisfied" according to a recent award bestowed upon QSuper with wins in six out of six categories including trust and customer satisfaction. Impressive. Interesting to note that the award-presenter - Mozo - makes money from product providers like QSuper. That's how awards work in financial services industry. Suppliers to institutions bestow them with awards so the clients of institutions feel better. Unfortunately, this delusion has been common in an industry desperate for credibility. Before coming back to Toyota and Apple recommendations, there's a related issue.

It may not just be so-called members needs influencing funds like QSuper and their new advice models.

The institutional trustees and boards must also be getting concerned about making the wrong headlines and featuring in future legal test cases of the industry's currently untested code of ethics, regulations and practices designed to "ensure member's best interests".

It's going to be a lawyer's picnic for many years to come. Having won the long-running retail versus industry funds battle on fees and reputation, are the victors now retreating from advice? Does it matter?

QSuper are simply playing to their strengths and experience while preparing themselves for bigger challenges as we are now seeing in other industries hell-bent on building distribution. We need to call this move to "limited advice" for what it really is. It is definitely not advice.

It is the same sort of product recommendation you'd get if you walk into a Toyota dealership looking for a car or an Apple Store looking for a phone or computer. It might be valuable and of good intent, but it's never going to be advice.

All Australians need good advice when faced with the uncertainty and complexity life throws in our path. We especially need advice when our decisions have many options with many different consequences.

Especially when those choices also involve significant emotion.

So for QSuper members whose job is threatened or may have recently lost earnings, health or partner, who struggle to pay their mortgage, can't manage their credit cards, wondering if now is the time to start something new, who need options post JobKeeper, or thinking of moving and re-start, or need to help ageing parents or their kids, or want to stop the money arguments around the dinner table or plan for a secure retirement, don't confuse the product recommendation you will get from QSuper with financial advice. For too long the product-based financial planning, investment and services industries have referred to their offerings as advice.

Regardless how QSuper justify their focus on limited advice, they cannot justify calling it advice. It is a product recommendation. That doesn't make it less valuable, it just makes it clearer for the 80 per cent of Australians whom thanks to this shift, still don't have access to valuable advice. What do you reckon?

3 comments so far

I totally agree with this article and its about time we called this situation out as most clients just want advice on product and they do not want to pay for a Rolls Royce when all they need is a Toyota. This is at the very core of why financial advice is so expensive, because we are expected to identify every possible future need in preparing our advice. All we should be doing is to highlight potential situations that might arise in the future and leave it there.

WILLIAM MILLS  |  7 SEP 2020   12.16PM

Agree totally with the sentiments expressed above. The Corps Act 2001 sets out the definition of financial product advice (Sec 766B), but this was "conveniently" shortened to financial advice by ASIC in its plethora of regulatory guides regarding financial services.

Overlay that with the "let's cover every scenario" and our butts at the same time approach by legal teams employed by dealers, and you have the recipe for the train wreck we now have.

So, the regulatory body (ASIC) has to sort out the confusion that it has created. Then it has to communicate that "clearly, precisely and effectively" to all stakeholders.

The Hayne Royal Commission needs to be seen for what it was - the express train coming in the opposite direction contributing to the train wreck.

Please don't run away with the idea that advisers are to blame here. Mostly they are only doing what they are told. What we need is to get back to basics. Financial product advice is exactly that. That's what is regulated. Financial advice is not defined in the Corps Act, and nor should it be. It is part and parcel of the every day job of accountants and financial counsellors, as well as those who provide financial product advice.

Very, very frustrating for those of us at the coal face.

SUE ALLEN  |  8 SEP 2020   9.56AM

ASIC, Hayne Royal commission and FASEA are the main hindrance to the financial advice area going forward.

A simplified and clear expectation model would solve most of the problems in this industry.

Instead we have a complex and over regulated industry with experienced advisers leaving with few new entrants.

Everytime you get lawyers involved (Hayne Royal commission) you run the risk of an unworkable and un-affordable outcome.

MARTIN BALL  |  14 SEP 2020   9.26AM
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