The Quality of Advice Review was born out of recommendations of the Financial Services Royal Commission to look at how the regulatory framework can better enable the provision of high quality, accessible and affordable advice.  Acknowledging that the difficulty and burden of complying with regulation is impacting consumers’ access to financial product advice and affordability, the proposals in the paper focus on the quality of the advice given, acknowledging that consumers want good advice, not documents and processes. This proposed shift from prescriptive processes and inputs to a principles based regime is said to be needed if financial product advice is going to be widely accessible and affordable.

What Are The Proposed Reforms?

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The key proposals for reform include:

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• General advice ceasing to be a regulated financial service – under the proposal, information about a financial product which is not personal advice would be subject to general consumer protections (including the prohibition on misleading and deceptive conduct).

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• Broadening the definition of personal advice so personal advice will be taken to be given when a provider has or holds information about one or more of the client’s objectives, needs or financial situation, regardless of whether any of that information has in fact been considered.   This is a change from the current definition of personal advice which looks at whether information has in fact been considered or whether a reasonable person might expect that it has been. This would mean that personal conversations and interactions, which include a recommendation or opinion intended to influence a customer to make a decision about a financial product, are likely to involve the provision of personal advice.

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• Replacing the current best interest duty with an obligation to give good advice, being advice which is “reasonably likely to benefit the client having regard to the information that is available to the provider at the time the advice is provided”.  This would simplify the duty by moving away from a focus on the process of formulating advice to an obligation focused on the content of the advice. 

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• Removing the requirements to provide certain prescribed documents including Financial Services Guides, Statements of Advice and Records of Advice.  This is not to say that key information communicated in these documents would not be provided. Instead, the advice provider can give their customers advice in a way their customers find most useful.  This less prescriptive form of giving advice is intended to reduce the cost of providing advice and make advice more accessible and affordable for consumers because of the reduced regulatory burden.

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While the Quality of Advice Review Issues Paper released in March 2022 set out a number of questions to understand the impact of the current exemption from the ban on conflicted remuneration for general insurance products on the quality of advice, there are no specific proposals in the consultation paper on this aspect of the regulatory framework.  Instead, we understand that any changes in this space will be subject to ongoing consultation. 

Proposed Reforms To Benefit Consumers

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Each of these proposals is a welcomed step towards simplifying the advice process which, over time, has become increasingly complex and challenging for consumers and advice providers alike to engage with. The proposals reflect the concerns of industry around the more practical aspects of the existing advice regime and the barriers to providing cost effective advice. In our experience, simple processes coupled with well understood responsibilities lead to better consumer outcomes overall.

Treasury has invited submissions on the proposals with a final report due in December 2022.  We will provide timely updates as the review progresses.

^{Prepared by Belinda Muir and Katherine Beards}

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