In August 2022, the Australian Treasury released the Quality of Advice Review Consultation paper (“Consultation Paper”) which provides proposals for reform relating to the quality of advice given by entities that provide financial product advice to clients.
Entities that provide financial product advice to clients must follow guidelines of personal advice and general advice under Chapter 7 of the Corporations Act 2001. Personal advice is defined as financial product advice that is given to a person where the provider considers one or more of the person’s objectives, financial situation and needs, and a reasonable person might expect the provider to have considered one or more of those matters. General advice on the other hand, is defined as financial product advice that is not personal advice. The purpose of the Consultation Paper is to consider whether…
current measures have improved the quality of financial advice, whether further reforms or other changes are needed and whether any measures or obligations are redundant.
consultation paper proposals
The Consultation Paper examines the legislative framework for financial advice and makes the following short form proposals:
- whether personal advice should be broader so that it is clear that it applies whenever a recommendation or opinion is provided to a client;
- the regime should no longer regulate ‘general advice’ as a financial service and the definition should be removed together with the obligation to give a general advice warning;
- the regime should require a person who provides personal advice to provide ‘good advice’. ‘Good advice’ is advice that would be reasonably likely to benefit the client. This would replace the best interests duty, the appropriate advice duty, the duty to warn the client and the duty of priority in Chapter 7 of the Corporations Act 2001;
- a provider of personal advice should be a ‘relevant provider’;
- superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund;
- superannuation fund trustees should have discretion to decide how to charge members for personal advice they provide to members. The restrictions on collective charging of fees should be removed and trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice;
- providers of personal advice should obtain annual written consent from their client to deduct ongoing advice fees from a financial product;
- providers of personal advice should be able to determine what form of advice would best suit their clients. Providers should be required to maintain complete records of the advice they provide. They should also continue to give clients a copy of the financial services guide or make information available to their clients on their website about their remuneration and other benefits they receive and dispute resolution procedures;
- reporting Requirements under the design and distribution obligations regime should be simplified by requiring relevant providers to only report to the product issuer where they have received a complaint in relation to a financial product; and
- there should be an adequate transition period for implementing these changes. Consideration should also be given to allowing providers to ‘opt in’ early.
In addition to the above, the Consultation Paper also considers if the current definition of general and personal advice is too uncertain, whether there should be more categories of advice, whether a principles-based approach would be more effective and what personal advice should cover.
The Consultation Paper proposes various ways that the regulatory regime can ensure that financial product advice given by entities is of high quality, easily measured and assessed. It is important to note that a report will come out in December 2022 that will review the current regulatory regime and propose new changes to the Government.
next steps for firms
The Quality of Advice Review is recommending reforms on how financial advice is administered. Have you considered if these changes will impact you? We can advise you on next steps and ensure you comply.
To review the Consultation Paper, please click here.
For more information, and any guidance on the Quality of Advice Review, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.
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