Four Game-Changing Proposals From The Quality Of Advice Review So Far

For advisers concerned about the current compliance burden, some statements and proposals already put forward as part of the Quality of Advice Review may make for interesting reading.  

First, we note that there is recognition that too many Aussies are being priced out of over-regulated advice.

At Adviser Ratings, our research has consistently pointed to a disconnect between what advisers are charging and what consumers are willing to pay. While the median advice fee has surged beyond $3500 amid rising compliance costs, most Australians told us they would pay less than $500 a year for advice, our consumer survey showed.

In a webinar, independent reviewer Michelle Levy linked this growing problem to the weight of regulation.

“If financial advice is going to be widely accessible and truly affordable, it’s clear that the current regulatory framework is a significant impediment [to] consumers accessing financial advice,” she said.

“It’s preventing advisers and institutions from providing advice and assistance to their customers, even where they’re asking for that advice and assistance.”

As part of the review, several plans have been put forward to address this situation, some of which could greatly change the day-to-day operations of advisers. Recently, we looked at the pitch to retire the Statement of Advice (SoA), a plan that has attracted support from a broad cross-section of advisers. Here’s a quick look at some other proposals.

1. Best-interests duty may become a thing of the past.

In a bid to reduce the regulatory burden, the financial advice review is considering replacing Chapter Seven best-interests obligations with a legal duty to provide “good advice”.

“I do not think it is necessary, nor even desirable, that a best-interests duty apply in every instance where a person provides personal advice,” Ms Levy said in the consultation paper for proposals.

“Good advice” has been defined in the paper as “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”.

However, the paper stressed that certain advice should still be covered under best-interests duty and consumers should have the option to choose an adviser who practises under the Chapter Seven duty if they wish.

Figure 1 – Proposal to streamline adviser obligations

Source: Quality of Advice Review consultation paper – proposals for reform.

2. Fee disclosure, in its current form, could go

Instead of producing an annual fee disclosure statement, advisers could instead be required to send their clients a consent form, if the consultation paper’s fee proposal is implemented.  

Again, the idea here is to cut down on duplication, the paper stated.

“The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the course of the upcoming 12 months,” it read.

“Where advice fees are deducted from more than one product, a single consent form should cover each of the products issued by a product issuer.”

3. General advice regulation may change.

From a consumer perspective, the review has already found there is some confusion about the difference between ‘general advice’ and ‘personal advice’.

As such, the paper proposed removing the current regulation of general advice.

“In my view, general advice should no longer be a financial service,” Ms Levy wrote in the paper.

She noted consumer protections would remain, due to the wording of Division 2 of Part 2 of the ASIC Act, which captures conduct connected to a financial service.

4. Advisers may have more flexibility in how they give information to clients.

While the paper noted Financial Services Guides (FSG) are easier to issue than SoAs, the need to make sure they are up to date does add to advisers’ compliance burden, it stated.

One proposal would give advisers the choice to provide clients with an FSG or contain information about remuneration, internal dispute resolution and the Australian Financial Complaints Authority on their website.

It is worth stressing again that, at this stage, these are just proposals. Treasury is now asking for comments on the ideas put forward in the paper, with the final report expected before the end of the year.

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