How Choice would change the advice industry

  • By Lucas Baird

Consumer watchdog Choice has recommended the Hayne royal commission endorse a new real-time direction power for the corporate regulator in its response to April's financial advice hearings, adding to the chorus of calls for this power.  

The proposal sits amongst a wider set of 12 from the customer advocacy group which outlines a vast overhaul of financial advice compliance just weeks after the commission exposed consistent failings across the industry. 

The new power for the Australian Securities and Investment Commission to direct remediation quickly and without a court enforcement to victims of financial misconduct is arguably the most drastic change outlined. 

Choice justified the recommendation because enforceable undertakings and subsequent court procedures which "significantly delays customer access to remediation". 

"The impact of a four-year delay in the context of a human life can be devastating," the submission said. 

The change is currently supported in-principle by the Turnbull government and was one of the key recommendations made in last December's ASIC enforcement review. 

"ASIC should be able to require compliance with AFS or credit licence obligations in real time, and that the regulator should be given powers to direct licensees to take or refrain from taking actions where appropriate for this purpose," said the report devised by a team of industry experts. 

The real-time power would fill a middle ground between informal engagements and more serious measures like licensing actions, court injunctions or enforceable undertakings, according to the report. 

But it was noted in the report that there were mixed views about giving the corporate regulator these abilities from stakeholders.  

The 12 recommendations 

Other significant measures Choice wants to see the banking royal commission back would hit the bottom line of advisors by ceasing all grandfathered commissions, a ban on conflicted remuneration, and outlawing fees for ongoing service arrangements. 

While further changes to ASIC's role through the introduction of a competition mandate into financial services laws, enhanced penalties plus breach reporting standards, ability to name and shame, and expansion of the legal definition of financial advice would also be made. 

Consumers also gain under Choice's recommendations, with mandatory notification to them when a breach is discovered, clear separation between advice and product sales, and the creation of a compensation scheme rounding out the submission. 

"A heavier touch" 

Choice claimed these solutions were born out of necessity and said there needed to be an acknowledgement of where issues started. 

"All too often consumers are hoodwinked into buying products that serve the advisors interests over the consumers," they said 

"Lasting solutions must also recognise that problems are not just with advice itself, but with the unnecessarily complex array of product offers that financial businesses have been allowed to develop." 

"The solutions point to a heavier touch approach to product design to help simplify decisions for consumers."