Progress......and a lesson from abroad......
Last week, the Financial Services Legislation Amendment Bill (FSLAB) was presented to Parliament for its first reading. Submissions made by MPs were broadly supportive of the Bill, but there was one point offered which is worthy of closer attention.
Michael Wood, MP for Mt Roskill and Parliamentary Under-Secretary to the Minister for Ethnic Communities, made reference to concerns around the lack of clarity between sales and advice. This issue has been referenced frequently in the submissions from industry during the legislative review process but has been studiously ignored by those responsible for framing FSLAB. (Note - in Mr Wood's speech, he made reference to "sales v service", but I believe he intended to refer to "sales v advice" as advice is the main subject of FSLAB.)
The central issue is that Vertically Integrated Organisations (VIO) - those who manufacture and distribute their own products - have a responsibility to shareholders to optimise profits and dividends by selling as many products as is required to meet corporate objectives.
To achieve this, VIOs retain the services of individuals who seek to find clients whose needs are appropriately met by the VIO's internal product.
Financial Advisers under the proposed Code of Conduct are charged with finding product solutions to meet the clients needs.
By placing the clients' interest first and by seeking product solutions from the wider market, Financial Advisers carry out a function that is fundamentally different from the individuals retained by VIOs to meet corporate objectives by maximising sales.
From Australia, we observe the dilemma created in their market by failing to address effectively the distinction between sales and advice. The depth of the problem has been expressed succinctly by Sir Anthony Mason CJ (retd) who effectively summed up the situation by stating that Australian Financial Services Industry law allows " the sales(wo)man to be legislatively cloaked in the disguise of an adviser".
This paradox has resulted in VIOs being investigated and fined by the regulator and adds strength to Michael Wood's point that this issue deserves very close attention.
FSLAB remains stubbornly silent on this vitally important consumer issue, and it is imprudent to suggest that our experience will differ from that of our nearest neighbour in this regard.