Quality of Advice Review: Key takeaways and implications

background

On 8 February 2023, the Australian Government released Michelle Levy’s Quality of Advice Review Final Report (“the Report”), which assesses the “accessibility and affordability of quality financial advice” available to Australians. The comprehensive Report was commissioned by the former government in response to the 2017 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (“2017 Commission”) which highlighted a great need to reform and review many of the incongruities in the financial sector. Levy takes great inspiration from the 2017 Commission and uses the 6 principles that Final Report Commissioner, Kenneth Hayne identified as underpinning the law to inform her analysis of quality advice…

The Report details 22 key recommendations focussed on greater protections for the consumers best interests. This is sought to be achieved through the simplification and clarification of responsibilities of advice providers, limiting the amount of burdensome or unnecessary administrative tasks that advice providers must comply with and expanding the protections offered across different types of advice. Levy’s extensive analysis and examination of how best to protect consumer interests leads her to 22 key recommendations that the Government should implement. Some of the key recommendations in the final report include:

• expanding what personal advice is, including that advice would be personal advice if prepared, adjusted for or directed to a particular client by a licensee that holds information about the client’s financial situation or one or more of their objectives or needs, and creating a “good advice” duty to ensure that advice is fit for purpose;
• general advice would be retained (however, with a narrower scope, given the expansion of personal advice) and removal of the requirement to provide a general advice warning;
• abolishing the Statement of Advice requirements and replacing this with the requirement for providers of personal advice to retail clients to maintain records of the advice and provide written advice on request;
• permitting superannuation fund trustees to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement;
• introducing a statutory best interests duty which would be a true fiduciary duty reflecting the general law and replace the existing best interests duty for relevant providers; and
• amending the Design and Distribution Obligations (“DDO”) to limit the exception to the requirement to take reasonable steps to ensure the distribution of a financial product is consistent with its target market to personal advice provided by relevant providers.

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The Quality of Advice Review was instigated because of the complexity of the regulatory framework of financial advice, making it difficult to understand and comply with. The recommendations aim to make it possible for people unable to access financial advice to get financial advice which takes into account their personal circumstances. Levy is convinced that the recommendations will make financial product advice more accessible and more affordable for Australians. The Government will undertake further public consultation before it responds to the Report, but it’s unclear if bold reforms to financial advice will follow.

In the event the Report’s recommendations are realised in law reform, firms will need assistance in ensuring they uphold a “good advice duty,” adjusting to the new requirements of personal and general advice and accounting for new DDO obligations amongst other changes.

We can help firms assess the impact of any reforms to come in light of the Report to prepare for implementation.

To read the Final Report click here. For more information on improving the quality of your financial advice process, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.

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