Editor's Note: Quality of Advice Review

Graham Hand  |   16th Sep 2022 | 4 min read

For a Government that ran a small-target strategy prior to the election, this week's 100-days-in-office milestone for Anthony Albanese and his team was a reminder of how much is on the table in only a few months. While some policies around the jobs summit and the Indigenous Voice to Parliament were expected, unanticipated changes in the financial services landscape are coming thick and fast. Anyone who hoped superannuation and financial advice would go through a period of stability had better strap in for the ride. Last week, at the annual Superannuation Lending Roundtable, Treasurer Jim Chalmers created plenty of industry angst when he advocated that the $3.4 trillion super sector should invest more in local social and nation-building investments such as housing and clean energy. There is an obvious potential conflict with generating the best returns for members, and he overlooked that about $900 billion is in SMSFs which are not likely to invest much in these projects without the right incentives. The Treasurer also revived the seven-year-old commitment from the previous Government to legislate a purpose for superannuation. It's likely to say that super is for income in retirement. There is an attempt to rewrite history here as potentially hundreds of thousands of Australians do not see their superannuation this way. Entirely within the rules, people have been encouraged by successive governments to put money into super as a savings vehicle, and many have no intention of spending it all in their retirement. Making a statement about the objective of superannuation will not change anything for these people. The Government has even announced a review of the Your Future, Your Super regulations and the performance test for super products. But most notable was the release of the Quality of Advice Review - Consultation Paper - Proposals for Reform (a process started by the previous Government). If adopted, the proposals will have a profound impact on financial advice. The Consultation Paper prepared by lawyer Michelle Levy will put financial advice back on a growth path. It proposes a relaxation of many regulations which have stifled financial advisers and forced many out of the industry. The challenge for the final paper (submissions are accepted until 23 September 2022) will be to strike the right balance between making more advice available while not compromising the protections built into the system for 20 years. They exist for a reason. Consider a couple of highlights which have already attracted praise and criticism. The biggest change is the removal of the best interests duty, which is currently extremely broad in its application, including (from section 2.1 of the Review): "Chapter 7 of the Corporations Act requires a person who provides personal advice to a retail client to ... a) act in the best interests of the client in providing the advice ... d) give priority to the client's interests if there is a conflict between the interests of the client and the provider or the interests of the client and the interests of an associate of the provider." This will be replaced under the proposals by a 'good advice' requirement: "A person who provides personal advice should be required 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." It is far from straightforward what 'good advice' means. A person can visit five financial advisers and receive six opinions. Then section 6.3 says: "Proposal to remove the requirement for SOAs (Statements of Advice) I query whether consumers want written advice at all, especially when the advice is simple or limited or when they have a regular relationship with the provider. In my view, the law should encourage and allow providers to provide advice in the way that best suits their customers." Moving from the current administrative headache all the way to providing no written record of the advice is a radical step. Reactions were varied depending on whether they represented the industry or consumers. For example, the SMSF Association called the changes a “breath of fresh air”: “We have also stressed that how advice is provided to clients needs to be commensurate with the level of complexity and the number of issues to be addressed. Simple, single-issue pieces of advice should be able to be delivered through a simple letter of advice. Currently, SOAs are risk management documents with a significant amount of their content compliance oriented. They have stopped being a consumer-centric document for the provision of financial advice and information." Critics argue the concept of ‘good advice’ is too vague, and it might allow conflicted advice that promotes second-tier products that are only good in comparison to something worse. The obvious targets are banks cross-selling their own funds or financial advisers pushing funds where the issuer pays a selling fee. Michelle Levy conceded some form of best interests duty may be required for complex advice or where a commission is paid. The Chief Executive of Choice, Alan Kirkland, said: “We have grave concerns. If the government removes the best interests duty, as proposed in this report, we’ll go back to the bad old days. The Review’s proposals to weaken consumer protections will fuel a revival of vertical integration, by making it easier for large banks and super funds to use their data to flog products to existing customers.”

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