Representation: Quality of Advice Review update

Following the extensive feedback provided to the Quality of Advice Review Issues Paper, a Consultation Paper has been released which outlines a number of proposals that impact the provision of financial advice in all its forms.

More than 100 submissions to the Issues Paper were received from all sectors of the financial advice industry, as well as consumer groups and clients. Many of these submissions highlighted the need for regulatory reform to remove barriers to advice, such as rising compliance costs and an unnecessary complex and confusing regulatory framework. The consultation paper acknowledged these concerns stating that the current regulatory framework is a “significant impediment to consumers accessing financial advice” that often prevents advisers from providing quality advice to their clients. Foreshadowing that changes to this regulatory framework will “need to be substantial if financial advice is going to be widely accessible and truly affordable”.

Among the proposals outlined in the paper are:

PERSONAL ADVICE DEFINITION

The paper proposes that the definition of ‘personal advice’ be amended so that ‘personal advice’ is “a recommendation or opinion provided to a client about a financial product (or class of financial product) and, at the time the advice is provided, the provider has or holds information about the client’s objectives, needs or any aspect of the client’s financial situation”.

This differs from the current definition in that the provider of the advice must consider the client’s objectives, needs or financial situation, not just hold information relating to it. This proposal aims to remove the uncertainty around whether the advice being provided is personal advice, while also preventing advisers from using a ‘general advice warning’ to limit their obligations.

DEREGULATION OF ‘GENERAL ADVICE’ AS A FINANCIAL SERVICE

The paper proposes to remove ‘general advice’ from the Financial Services Regulation regime, as well as remove the obligation to provide a general advice warning. Under this proposal, general advice will no longer be regulated as a financial service, however existing consumer protections (including the prohibition on misleading and deceptive conduct) will still apply. In addition, if the provider of the advice also holds an AFS license, obligations will also apply.

REPLACE THE CURRENT ‘BEST INTEREST DUTY’ WITH AN OBLIGATION TO PROVIDE ‘GOOD ADVICE’

The paper states that the current best interest duty “has not been more effective than disclosure in protecting consumers from poor advice”. The paper proposes to replace the existing best interest duty with an obligation to provide ‘good advice’. ‘Good advice’ is advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided. This proposal aims to encourage the provision of quality advice by shifting the focus from the steps the advisers has taken to the content of the advice being provided.

What information advisers will have to consider in order to provide ‘good advice’ will differ based on the type of advice being provided, and the scope of the advice as agreed between the client and the adviser. Importantly, the paper notes that this is not a ‘best advice’ test, nor does the obligation to provide ‘good advice’ requires a comparison with other financial products in all instances.

REMOVE THE REQUIREMENT FOR STATEMENTS OF ADVICE

When referring to Statements of Advice (SOAs), the independent reviewer states “I am not persuaded that SOAs provide any real protection to consumers”. Rather than reduce the SOA content requirements, which the paper states would likely result in shorter documents “full of templated text and be prepared by advisers (or more likely licensees) with an eye on defending a claim or regulatory proceedings rather than assisting their clients”, the paper proposes to remove the requirement for an SOA or record of advice altogether.

Instead, advisers would be required to maintain complete records of the advice they provide and to provide a written record of advice to clients upon request. The paper notes for these records may take many forms including emails, file notes, recorded phone calls, documents provided to clients etc.

NIBA provided a response to the proposals paper commending the review on the consultative approach taken to financial services reform and broadly supporting the proposed changes. NIBA notes that a number of the proposals appear to have been written with financial advisers in mind, and further clarification would be required to ensure the proposals are appropriate for the general risk advice sector. In addition, NIBA took part in a number of industry and association roundtables which provided an opportunity to provide feedback to and seek clarification from the independent reviewer directly.

Treasury has indicated that they will consult with affected industries on any potential changes to the remuneration of advisers once they have completed their analysis of the data provided by both general and life insurance brokers and insurers, however, there are currently no plans to release a second proposals paper. A final report will be provided to the Federal Government by 16 December 2022.