Should product providers be mandated to provide independent advice?
Mechanisms need to be looked at to help encourage Australians to understand investment risks but clients of financial advisers should not be paying for advice for other investors in the same scheme, industry associations believe.
During a Senate Economics Legislation Committee, industry associations were asked by the committee chair Paul Scarr, who pointed to the Sterling Collapse, about whether promoters of managed investment schemes should be mandated to provide independent financial advice and that the cost of the advice should be distributed across all participants in the scheme.
Association of Financial Advisers (AFA) chief executive, Phil Anderson, said: “That's a big call to mandate getting access to financial advice. Obviously coming from a financial advice association we would strongly support people getting access to advice, particularly if they're investing in something that is higher risk.
“The design that you described in terms of the cost of that advice being shared across other investors is a pretty significant consideration.
“We would argue that clients of financial advisers shouldn't, if they're already paying for that advice, they shouldn't be paying for advice for other investors in the same scheme. But mechanisms need to be looked at to help encourage Australians to understand the risks they are taking and to consider other forms of protection.”
CPA Australia financial planning policy adviser, Keddie Waller, agreed with Anderson and said the industry needed to think about the complexities around products.
“If you look at Sterling there was a misconception that some people were actually investing more around their retirement living as opposed to going into a product and I think that's some of the things we need to think about language and how products marketed to people, especially when they're directly marketed to individuals,” she said.
“In that case, I think another thing we need to think about is financial literacy. And the important point about trying to upskill more broadly the community to understand what information they're receiving, what they should be looking for, and that will also help encourage seeking professional advice.
“As a sector, there's a lot of things that we could doing to actually work together and really improve those sorts of mechanisms that together will actually address some of these risks that we're looking at.”
Financial Planning Association of Australia (FPA) government relations and policy senior manager, Brad Vermeer, said there were instances where investors sought legal advice and were told the Sterling scheme was fine to invest in.
“It's about people accessing the correct advice not necessarily just seeking advice in one form or another,” Vermeer said.
“Obviously we’re very supportive of people accessing financial advice and for financial advice to be affordable but ensuring that consumers are adequately protected particularly when it comes to some of these schemes like Sterling where it is incredibly complex.
“I think is important and it will provide a certain level of confidence in the sector if these kinds of protections are extended across these products.”
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