We unpack the release of the final report from the previous government’s Quality of Advice Review and what this might mean for the financial services industry in the future.
The much anticipated Quality of Advice Review final report was released in early February.1 Conducted by Allens lawyer Michelle Levy, the review focussed on the financial advice regulatory framework and has recommended a number of changes to the way advisers do business.
Some of the key recommendations in the report are:
- No more safe harbour steps: The safe harbour steps that are currently an ASIC requirement for advisers to prove they have complied with the current best interests duty would be no more. The report recommends the current best interests duty be replaced with a less prescriptive "statutory" best interests duty that is a true fiduciary duty, which will only apply to financial advisers who are relevant providers, according to Recommendation 5 of the report.
- Duty to give good advice: The duty, when providing personal advice to a retail client, would apply to financial advisers who are relevant providers or financial services licensees and would ensure the advice given is “fit for purpose” without the need for a full Statement of Advice (SOA), according to Recommendation 4 of the report. The review suggested “fit for purpose” would involve an assessment of what type of advice the client was seeking, the scope of the advice given and the relevant circumstances of the client.
- Retaining risk commissions: In Recommendation 13.7, the review concluded that no more changes were needed to the commission payment model in life insurance advice. However, the report recommended advisers should obtain clients’ informed consent before accepting a commission.
- Removal of general advice warnings: The report recommends that general advice should continue to be a financial service, but the requirement for a general advice warning to accompany general advice should be removed, according to Recommendation 2 of the report.
- Records to replace SOAs: For providers of personal advice to retail clients, SOAs and ROA’s would be replaced with a requirement for advisers to keep complete records of advice given to clients, with written advice to be provided to clients on demand only, according to Recommendation 9.
- Simplify ongoing fee arrangements: Recommendation 8 of the report suggests a single consent form be used to get a client’s permission to deduct advice fees annually and explain the services that will be provided for that fee, rather than the several forms needed at the moment.
The financial services industry has largely welcomed the report’s approach, with ClearView Managing Director Simon Swanson saying the recommendations would remove “unnecessary complexity in the system and reduce the compliance burden on advice businesses”.2
However, consumer groups have expressed concerns that unwinding many of the current industry laws could lead to more adviser misconduct and worse outcomes for advice clients.
What happens now?
Financial Services Minister Stephen Jones has said the government will consult further on the recommendations before it formally responds to the report by bringing any new laws to parliament.3
As well as conducting more public consultation on the recommendations, Mr Jones said the government would also seek its own expert advice before putting its response together.
“Anyone with an interest in financial advice should read the report and make their views known,” Mr Jones said in a media release following the distribution of the report.
“We want to see an industry with strong professional standards that’s accessible for more Australians and look forward to hearing views on achieving that goal.”
This delay has been criticised by the federal opposition, with financial services spokesman Stuart Robert saying that keeping existing laws in place would “deny Australians the opportunity to seek affordable, quality advice at a time when most Australians are finding it tough to meet the cost of living”.2
But as any response to the report will need to look at the removal of key aspects of financial services legislation, including the long-standing Future of Financial Advice laws, the government is likely to look carefully at this before proceeding.
1 Quality of Advice Review Final Report, December 2022
2 'Consumer groups lash Michelle Levy's advice reforms' - The Australian, 8 February 2023
3 'Labor to stress test plan to overhaul financial advice' - Australian Financial Review, 8 February 2023
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