CAANZ

What will come from the Quality of Advice Review?

TONY NEGLINE is superannuation leader at Chartered Accountants Australia and New Zealand. What will be the outcome of the Quality of Advice Review? This is an extremely good question and speculation is often fun and sometimes necessary.

We could spend the next umpteen number of hours talking, writing and reading about what may happen. For policy advocates such activities are essential if they need to meaningfully engage with these types of reviews.

But what about for people who work at the coalface with actual retail clients? If you fall into this cohort, I do not think it is worth your time engaging in the Quality of Advice Review for large amounts of time for the following reasons.

Allens partner and financial law expert Michelle Levy, who is leading the review, will hand her recommendations to government in mid-December this year.

From here the process then gets a bit murky.

Sometimes governments like to study a review’s findings before publicly releasing the main document and at the same time telling us what they intend to do with the review, such as the recommendations they will keep or change and when they will aim to implement them. They will also sometimes let us know what parts of a review will be ignored or discarded. Two examples of this process were the Ralph business tax review and the Henry tax system review.

On other occasions governments will release documents publicly and then at a later date indicate what they intend to do. An example of this process was the Cooper super review. In fact, with the Cooper review the government announced the formation of a committee to provide further guidance on the recommendations, so a review and then an implementation group.

Once we know the government’s position, we then have the legislation and regulation to put in place its ideas. It is often the case there are differences between what gets announced and what actually finds itself into practical application. There are too many reasons as to why this occurs.

In short, in relation to the Quality of Advice Review, no one knows where it will land, no one knows what the government will do with these recommendations and no one knows what the functional implications will be of any rule changes and when they may apply.

In my view, I think those dealing directly with clients should focus on what you need to comply with now. You know it is likely the rules are going to change and hopefully change for the better. But that won’t help you get your work done right now.

So this deals with the quality of advice and the unknown ‘rubber has hit the road’ timeline.

Now let’s look at what areas of advice the review will actually address. The review is focused on the advice process, that is, the know your client rules and production of advice documents.

It is not necessarily looking into other aspects of the advice process, such as applying for a licence or being an authorised representative. Similarly, education standards will be subject to a separate review. It is also not necessarily looking at Australian Securities and Investments Commission fees and so on, which are also subject to a separate review.

So there are important aspects of the advice industry, which are market failures in most cases, such as limited Australian financial services licences for accountants, that the review will not be looking at.

The definitions of what is a retail, wholesale or sophisticated client are unfortunately out of scope as well. However, the review has been asked to examine if the “consent arrangements for sophisticated investors and wholesale clients are working effectively for the purposes of financial advice”.

It is our view that the definitions of wholesale and sophisticated clients are an area that needs urgent reform. We believe there are many situations where clients unknowingly give away their rights as a retail consumer, often to their long-term detriment. Shail Singh, one of the Australian Financial Complaints Authority’s (AFCA) senior ombudsmen, expressed a similar sentiment at the recent SMSF Association Technical Summit. Singh said AFCA would like to see clients make an informed consent about being classed as a wholesale investor.

Given its scope, the Quality of Advice Review has the potential to make long-term worthwhile improvements to the advice space, but clearly there are other areas of the advice sector that also need to be addressed.