Background: Quality of Advice Review
The Quality of Advice Review, spearheaded by former Allens Partner Michelle Levy as the government-appointed Independent Reviewer, took in feedback from the IPA in June and September 2022, as well as other peak bodies, membership associations, individual experts and policy specialists.
Its purpose was relatively simple: to increase Australians’ access to high quality finance information. Its genesis was the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Levy’s final report was delivered to Treasury in December 2022, via the Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services.
The Government provided its response in June 2023.
The report’s 22 recommendations – 14 of which will be adopted over the next 12 months – indicate clear acceptance that the regulatory framework has become so complex as to be incoherent, and that it impedes access to advisers’ expertise.
In this regulatory environment, the report says, Australia’s 16,000 financial advisers are unable to provide relevant, timely or simple consultation to consumers in a way that meets their needs.
There are also not enough advisers.
The response from Government
The Australian Government’s response to the Levy report, released in June 2023, outlines agreed changes as well as areas to be explored.
Removal of regulatory red tape
- Removing Safe Harbour steps from the Best Interest Duty, and consulting around developing a new Best Interests Duty.
- Streamlining fee renewal and consent requirements into a single form, removing the requirement to provide a fee disclosure.
- Consultation around the development of a more fit-for-purpose record to replace the current Statements of Advice.
- Providing greater flexibility around the delivery of financial service guide requirements, as well as internal and external dispute resolution procedures. This could include publication on the financial adviser’s website.
- Introduction of standardised consumer consent requirements to classify a consumer as a wholesale or sophisticated client.
- Clarifying that monetary or non-monetary benefits given by a client are not conflicted remuneration along with the removal of consequential exceptions.
- Removing an exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months.
- Removing an exception to conflicted remuneration rules for agents or employees of Australian Authorised Deposit-Taking Institutions.
- Deferment of consideration of a review of time-sharing schemes.
- Standardising consumer consent requirements for life, general and consumer credit insurance commissions.
Expansion of access to retirement income advice
- Restrictions on collective charging to be amended to allow superannuation funds to provide more retirement information and consultation to their members.
- Fund trustees to be provided with legal clarity around current practices for the payment of adviser service fees, particularly around paying a fee from a member’s account.
Exploration of new channels for advice
The Government has not answered definitively the question of whether accountants will be able to provide financial advice without further licencing, but has flagged its willingness to “explore expanding the provision of advice by other institutions by consulting industry and consumer stakeholders on recommendations to”:
- Broaden the definition of personal advice so it encompasses any and all financial product advice if given in a personalised interaction or communication.
- Remove the general advice warning.
- Allow non-relevant providers to provide personal advice unless the client pays a fee or the issuer of the product pays a commission for the sale of the related product.
- Introduce a good advice duty, meaning the advice provided is fit for purpose in that it is:
- Given in response to a request from the client or volunteered by the provider, along with the reason the provider considers it of use to the client.
- Suited in its scope, content and nature to the circumstances of the client.
- Amend the Design and Distribution Obligations (DDO) to limit the exception to the requirement to take reasonable steps to ensure the distribution of a financial product is consistent with its target market to personal advice provided by relevant providers.
The consultation for the above new channels will also be used to finalise implementation details for the Statements of Advice replacements, the new statutory Best Interests Duty, the Financial Adviser Code of Ethics and the expansion of access to affordable retirement advice.
“Government consultation will test how these proposals might operate under different advice models, including digital advice models, and across sectors,” the Government response says.
“Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections.”
Members have an opportunity to hear directly from Minister Stephen Jones about the Quality of Advice Review. Join us in Townsville on 12 July for a lunch briefing, presented by the IPA in conjunction with other financial services and accounting peak bodies.
The IPA submitted comments to Treasury to help shape the Quality of Advice Review in June 2022 and in response to the Proposals Paper in September 2022, and will continue to consult throughout implementation.
