MEDIA RELEASE: There may be unintended consequences in the Quality of Advice (QoA) review’s recommendation to deregulate general advice, according to David Wright, CEO of Zenith Investment Partners.
“As an investment research business, we are supportive of the QoA review and its objectives. We remain a strong advocate of the value of quality advice and believe it should be more broadly available to consumers. However, the recommendation to deregulate general advice may have an adverse effect.
“While we are not providers of personal advice, we feel that the replacement of best interest obligations with obligations to provide ‘good advice’ may have the unintended consequence of lowering the quality of advice to consumers and the standards of advice across the industry as a whole,” Wright said.
He added that select services – those that may not be recognised by consumers – are nevertheless important to the integrity of the quality advice standards delivered to the market under the current general advice standards.
“In particular, quality product research and screening for advisers and their clients is a critical market function. This will continue to be the case as the supply of product options and manufacturers for investors inevitably expands. This view is consistent with ASIC’s Regulatory Guide 79 (RG79) and the requirements it places on research report providers.
“A regulated approach to investment product and superannuation fund research and delivery, together with the consumer protection measures noted in the QoA review recommendations, will afford consumers (and their advisers) stronger protections and further support the delivery of quality advice.”
Meanwhile, Chant West general manager, Ian Fryer, said the proposed pause in the Your Future Your Super (YFYS) performance test for Choice products is welcomed and is in the best interest of super fund members.
“There have been a number of unintended consequences of the proposed test. A number of funds have been forced to adopt a shorter-term focus to ensure they pass the test. This has often been accompanied by less portfolio diversification to better track the test’s benchmarks, and unfortunately this is the time in the cycle that diversification is so critical. In addition, many Choice products are ill-suited to assessment using the standard benchmarks and we believe it’s better to come up with a test that caters for the full breadth of choice investment options.
“The test should include a range of different metrics that provide more information on performance over various periods, risk-adjusted returns over different timeframes and an administration fees metric. This would provide a much fuller picture of overall performance,” he said.
While some regulation has driven unintended outcomes, Fryer praised the introduction of the Retirement Income Covenant.
“Although we have just celebrated 30 years since the introduction of the Superannuation Guarantee, the super system is still evolving and is yet to reach maturity. While the Australian super saving system is close to the world’s best as far as the accumulation phase is concerned, there’s work required to deliver a world-leading pension system,” Fryer said.
“The Retirement Income Covenant has created the impetus for super funds to consider how they help members manage longevity risk, among other risks in retirement. It is starting to drive the required product innovation to deliver best practice retirement solutions that help members invest and draw down their pension account appropriately, providing an income and reducing financial stress in retirement.
“And just as importantly, it requires funds to provide adequate services and support to help fund members get the product (or mix of products) that works best for them, through a range of advice and guidance services. The QoA review is critical to ensure that the provision of this sort of retirement advice is affordable for fund members,” he said.
