The new financial advice rules may make call centres even more frustrating, reports Lucinda Schmidt.
From tomorrow, some customer service staff will seem a lot less helpful. That's because today marks the end of the two-year transition period for the licensing of anyone who gives financial advice or deals in financial products.
The most obvious changes will be at banks and insurance companies. If you ask bank tellers about term deposits, for example, they will hand you a brochure listing the interest rates and tell you to make an appointment to see the manager or a financial planner if you need anything more.
And you will not be able to chat to the call centre operators at your insurance company about how much insurance you need. Instead, they will outline their company's products and prices and give you a toll-free number to call if you want more information.
The reason for the new approach is the Financial Services Reform Act, which implements many of the recommendations
of the 1997 Wallis Committee inquiry (see panel below).
One of the key aspects of the licensing regime is that most front-line customer service staff will be able to give only factual information, not advice. The underlying philosophy is that many customers do not understand that the bank and insurance workers fielding their queries are salespeople, not financial advisers, and decisions such as insurance cover should not be taken lightly.
ASIC's director of FSR licensing, Pauline Vamos, agrees that some consumers may find the changes irritating, and that some transactions, such as buying insurance, will take longer. But she says consumers will be better informed about the product and any commission paid, and it is worth spending an extra five minutes on a decision that could be worth hundreds of thousands of dollars (for example, if your house burns down).
"If [businesses] want their staff to be able to recommend products and give advice, they need extra training. If customers are going to rely on someone, we want to make sure that reliance is well-founded."
Customers will also notice changes when they deal with travel agents, furniture removalists, car dealers and car hire companies because these businesses also sell insurance. They, too, must be licensed, or the authorised representative of a licensee.
For example, most travel agents will no longer be able to advise customers about how much travel insurance they need. The chief financial officer of Harvey World Travel, Tim Dodds, says the chain's travel consultants have been retrained to merely give customers a brochure and refer them to the insurance underwriter if they need more information.
"In the past, they would have said, 'Because you're going to the US, you need full cover' or 'You're going to New Zealand so insurance is less of an issue'.
"Now, the customer is going to be less informed, and most of them will just choose the cheapest option. Most people haven't got the time to be referred to someone else."
Lawyer Pamela Hanrahan, a special counsel at Allens Arthur Robinson, says that regulating investment products is a good idea, but she is concerned that heavy-handed regulation of third-party distributors will make access harder, especially for people in regional areas.
"In many communities, access to financial products is through the newsagent, the pharmacy or the post office."
The Financial Services Reform Act
The 1997 Wallis Committee report recommended uniform regulation of the financial services industry and extra consumer protection by requiring anyone who gives financial advice, or deals in financial products, to be licensed.
On March 10, the two-year transition period for licensing, under the Financial Services Reform Act, expires.
Financial sector businesses such as insurance companies, banks and financial planners must be licensed and many "non-financial sector" businesses, such as travel agents and car dealers will also be caught by the act if they sell insurance to the public.
Most of the customer service staff for these types of businesses will be unable to give any advice on financial products such as bank accounts or insurance policies.
They will be allowed to give the customer "factual information" about the financial products, and perhaps refer them to another staff member who has had more training, or an external expert such as the insurer's underwriter.
Line of fire
Under the new rules, most front-line customer service staff will be able to give factual information only, not advice. The examples below, from the Australian Securities and Investments Commission (ASIC), show just how easy it is to step over the line:
A customer has two quotes for car insurance; one is for comprehensive cover and one is for third party liability. The insurance company's call centre operator says that comprehensive cover is the best choice for most people. ASIC says this is likely to constitute financial product advice, because it suggests a value judgement about the policies.
A customer with $10,000 to deposit asks a bank officer about the different interest rates on a savings account and a term deposit. The officer explains the rates, then adds that there is "an attractive special rate" on six-month term deposits. ASIC says this is likely to constitute financial product advice because it is a matter of opinion as to whether the rate is "attractive" and the officer is intending to influence the customer's choice.
