The final report into the quality of financial advice review has been released containing 22 recommendations to the regulatory framework in order to increase the accessibility and affordability of quality financial advice. According to the author of the report, Ms Michelle Levy, the current regulation of financial produce advice focuses on providers and not consumers and is itself an impediment to consumers getting useful guidance and good financial advice. The recommendations, therefore, are more consumer focused and wide-ranging, some of the more relevant ones are listed below.
Broadening the definition of personal advice
The definition of personal advice in the Corporations Act should be broadened so that all financial product advice will 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.
Personal advice must be provided by a relevant provider
The Corporations Act should be amended to indicate that personal advice must be provided by a relevant provider where the provider is an individual, and either the client pays a fee for the advice, or the issuer of the product pays a commission for the sale of the product to which the personal advice relates. In all other cases, personal advice can be provided by a person who is not a relevant provider.
Introduce a good advice duty
An individual that provides personal advice to retail clients must provide good advice. Good advice means personal advice that is, at the time it is provided, fit for purpose (having regard to various matters such as scope, content, nature, etc), and in all circumstances, good. If the advice is provided by a financial adviser (relevant provider), this duty applies to the financial adviser. In all other cases, this duty applies to the AFS licensee.
New statutory best interests duty
The new best interest duty would be a true fiduciary duty that reflects the general law and will not include a safe harbour. This duty will apply only to financial advisers (relevant providers).
New ongoing fee and consent arrangements
Providers would still need to obtain their client’s consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single “consent form”. The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the following 12 months. The consent form should also authorise the deduction of advice fees from the client’s financial product and should be able to be relied on by the product issuer.
Change to requirement to provide a statement of advice
The existing requirement should be replaced with the requirement for a provider of personal advice to retail clients to maintain complete records of the advice provided and to provide written advice on request by the client. Clients should be asked whether they would like written advice before or at the time the advice is provided and a request for written advice is required to be made before, or at the time, the advice is provided.
This is just a snippet of relevant recommendations in relation to financial services and doesn’t include other areas such as insurance, super, or wholesale clients. The government is currently consulting widely on all 22 recommendations on the possible implementation of the requirements to make financial advice more accessible, along with strong professional standards.
