Quality of Advice final report targets 'serious defects', backs commissions
The Quality of Advice Review final report calls for an expanded definition of personal advice and recommends other changes relating to the way advice is provided, saying the changes are aimed at “serious defects” in the current regulatory setup.
The report, released today, also pushes for the retention of exemptions to the ban on conflicted remuneration – an arrangement that allows general insurance brokers and life advisers to be paid a commission, but on the condition that clients must first give their consent in writing.
Reviewer Michelle Levy has mostly kept to initial suggestions flagged in an earlier consultation with the industry and other stakeholders as part of her examination of the advice sector, including general insurance.
She says a new “good advice” duty, as raised in her consultation paper, should be established to replace the existing best interests duty requirement as set out in the Corporations Act.
However she appears to have departed from her previous position on general advice. The final report says general advice should continue to be a financial service but the requirement for an accompanying warning should be removed, as was flagged in an earlier consultation.
She says she has listened to feedback and is “persuaded that there is merit in retaining the requirement for providers of general advice to hold an AFS licence or to be the representative of an AFS licensee” and so has not recommended its removal from the regulatory framework.
Ms Levy says her recommendations – 22 in total – would improve the accessibility and affordability of quality financial advice if the Federal Government takes them up.
She says there are “serious defects” in the regulatory framework for financial advice, making it complex, difficult to understand and difficult to comply with.
“They are an undoubted impediment to consumers being able to access affordable financial advice,” Ms Levy said.
“They are also an impediment to consumers accessing high quality advice. The regulatory framework has not even proved effective in preventing consumer harm.”
Consumers want and expect good financial advice, she says, but are not getting it under the current legislative setup.
She says she “deliberately” chose the term “good advice” because it describes “simply, clearly and directly what consumers want and what the law should require”.
“In my view this would encourage better quality advice and provide consumers and advisers with a clear statement of what they can expect and what they are required to do,” she said.
She says creating a “good advice duty” is aimed at focusing attention directly on what the consumer needs and wants – which is good advice – rather than on what the provider of the advice does.
“And so the duty focuses squarely on the content of the advice. But this does not mean that a provider of advice will breach their duty if the intended outcome does not eventuate,” Ms Levy said.
The Federal Government has not responded to the report, which it received in December. Financial Services Minister Stephen Jones says the Government will instead first consult widely on the report’s recommendations.
The National Insurance Brokers Association (NIBA) has responded favourably to the report as have other financial services peak bodies.
“We can see there are some very positive observations and pragmatic recommendations in relation to insurance and insurance brokers,” NIBA CEO Phil Kewin said.
“The reviewer Michelle Levy acknowledges the important role of insurance in the community and the role of the broker in benefiting both the client and insurer. Importantly, commissions have been retained in order to ensure clients still have access to affordable advice from brokers.”
He says the proposed expansion of the definition of personal advice will give more clarity and certainty for clients. It will also create a level playing field irrespective of consumers access their advice via a broker, agent or directly from an insurer.
But consumer advocate Choice, which has been vocal in its opposition against the Review’s earlier consultation paper, says the final recommendations are a “recipe for another royal commisison”.
“The radical changes that it recommends will expose consumers to unacceptable risk when obtaining financial advice from a bank or super fund,” Choice CEO Alan Kirkland said.
“This will be a lawyer’s picnic. It will take years for the courts to clarify new legal definitions and lots of people will lose money in the meantime.”
Click here for the report.
