QUALITY OF ADVICE REVIEW LEGISLATION UNVEILED

Last month Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP unveiled the first tranche of legislation, to implement the government’s response to the recommendations of the Quality of Advice Review.

As announced by the Federal Government earlier this year in its ‘Delivering better financial outcomes roadmap’, the reforms will be introduced as part of a three-stage process, with each stage aligned to a different stream:

• Stream one – removing red tape that increases the cost of advice;

• Stream two – expanding access to retirement income advice; and

• Stream three – exploring new channels for advice.

The legislation includes reforms aimed at removing regulatory red tape that increases the cost of advice including:

• Introducing client consent requirements for life insurance, general insurance and consumer credit insurance commissions (QoA recommendations 13.7-13.9); and

• Amending FSG requirements to allow providers greater flexibility in the way they provide disclosure documents (QoA recommendation 10).

Other reforms that were originally slated for release in Stream 1 including replacing Statements of Advice with a fit-for-purpose record of advice (QoA recommendation 9) and the removal of Safe Harbour steps (QoA recommendation 5) have been postponed until Stream 2.

FLEXIBILITY FOR FINANCIAL SERVICES GUIDE (FSG) REQUIREMENTS

The draft legislation proposes amending the Corporations Act to allow providers of personal advice to either continue to give their clients a FSG or instead make the FSG information publicly available on their website.

A provider can choose whether to continue providing a FSG in accordance with the current law or alternatively provide the FSG on their website. To rely on the alternative option, where a provider does not give the client a FSG and instead includes the information on its website, certain requirements must be met:

• The financial service provided to the client is personal advice; and

• At the time the advice is provided, the client has not requested a copy of the FSG and the information that would have been in the FSG is available on the provider’s website; and

• At the time the advice is provided, each web page displaying the information is readily accessible, up to date and records the date the page was prepared or last updated.

New Consent Requirements For General Insurance Commissions

The draft legislation introduces new client consent requirements for general insurance, life insurance and consumer credit insurance products. The requirement stipulates that advisers who provide personal advice to a retail client about a life risk insurance, general insurance or consumer credit insurance product must obtain the client’s informed consent before accepting a monetary benefit such as a commission.

The new requirement also stipulates that advisers must inform the client of any services that they will provide the client for the relevant product, mirroring the terms of engagement obligations under the current Insurance Brokers Code of Practice (Code).

Unlike the Code, which requires Subscribers to disclose the dollar amount of commission, the proposed legislation allows the disclosure to be limited to a percentage range i.e. 10-20% of the premium. In keeping with the Code’s commitment to set standards above those required by law, Subscribers will still be required to disclose the dollar amount of commission to retail clients.

The legislation stipulates that a written record of the client’s consent must be retained, however, clients are not required to provide consent in writing. This allows brokers greater flexibility when obtaining consent from clients.

In response to concerns raised by NIBA that the commission consent obligations could result in clients being left uninsured if brokers were required to wait for the client to provide consent prior to renewing a policy, the draft legislation does not require brokers to obtain the client’s consent at each renewal provided the broker informed the client they would receive commission on each occasion that the policy is renewed prior to obtaining the client’s original consent.

Reactions to the draft legislation across the financial services landscape have been mixed. While most organisations welcomed the announcement many expressed concerns that the promised reforms to Statements of Advice and the Safe Harbour steps had been delayed.

“It is a missed opportunity to have deferred implementing key recommendations on abolishing the safe harbour steps and simplifying SoA, which would achieve the most in reducing the regulatory cost burden on financial advice,” said Financial Services Council CEO, Blake Briggs.

In a message to members, NIBA CEO Phil Kewin said, “We welcome the release of the draft legislation and look forward to working with government on these important reforms to remove regulatory red-tape and improve the affordability and accessibility of general risk advice.”

Next Steps

Consultation on the draft legislation closed earlier this month. NIBA has provided a submission on behalf of members, expressing their commitment to work with government on the remaining reforms.

In their formal response to the Quality of Advice Review, the government accepted 14 of the 22 recommendations put forward by the independent reviewer and indicated it would consult further on a number of reforms relevant to insurance brokers as part of Stream 3. Among these reforms are:

• Expanding the definition of personal advice so that all financial advice will be considered to be personal advice if, it is given to a client in a personal interaction or personalised communication by a provider of advice who has (or whose related body corporate has) information about the client’s financial situation or one or more of their objectives or needs.

• Removing the requirement to provide a general advice warning.

• Replacing the current Best Interest Duty with a duty to provide good advice.

In a briefing to media, the minister stated that the government intends to finalise their position on the remaining recommendations by the end of this year.