Outcomes of quality of financial advice review
In a bid to increase the accessibility and affordability of quality financial advice, the government had previously commissioned a report into possible changes in the regulatory framework. The final report has now been released, containing 22 wide-ranging recommendations. According to the author of the report, Ms Michelle Levy, the current regulation of financial product advice focuses on providers and not consumers, and is itself an impediment to consumers getting useful guidance and good financial advice.
The recommendations are therefore more consumer-focused, and are wide-ranging. The government is currently consulting widely on the possible implementation of the requirements to make financial advice more accessible, along with strong professional standards. The following offers just a snippet of the relevant recommendations in relation to financial services, and doesn’t include other areas such as insurance, super, or wholesale clients.
Broaden the definition of personal advice
The definition of personal advice in the Corporations Act 2001 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 who 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 Australian financial services (AFS) licensee.
Introduce a new statutory best interests duty
The new best interest duty would be a true fiduciary duty that reflects the general law and does not include a safe harbour. This duty would apply only to financial advisers (relevant providers).
Implement new ongoing fee and consent arrangements
Providers would still need to obtain their clients’ 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 the requirement to provide a statement of advice
The existing requirement to provide a statement of advice 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 would be required to be made before, or at the time, the advice is provided.