Michelle Levy
Banks, superannuation funds and life and general insurers will be encouraged to provide financial advice on simple matters under a new advice model the government hopes will deliver affordable services to more people.
The Minister for Financial Services Stephen Jones yesterday released the government’s final response to the Quality of Advice Review. It has accepted the key finding of the review that the regulatory framework governing the financial planning industry is unwieldy and legalistic.
The review’s author, Allens partner Michelle Levy, said consumers should be able to get “incidental, simple and limited” advice as and when they need it, and that is usually when they are dealing with their bank, superannuation fund, insurer or investment manager.
She said a fundamental problem with the regulatory framework is that it was established on the basis that all advice is comprehensive advice, not the “simple personal advice” that people want in most instances.
“Financial institutions benefit from the products their customers hold and, because of that, they should provide them with the advice they need about those products. The law should encourage them to do so in a way that is not only safe, but which serves the interests of consumers,” the review said.
The government will introduce a “modernised and flexible” best interests duty that provides “clearer legislative support for scaled or limited scope advice where this meets the client’s objectives and needs, and for advice where the advice provider has limited but relevant information”.
Jones said a new class of financial advisers would fill the advice gap, with a focus on providing advice on simple matters, and be prevented from charging a fee or commission.
The inclusion of banks in this new model is a bit of a surprise. In June, Jones said he was not persuaded that the model was fit for purpose for banks and insurers, given their past misconduct. The Hayne royal commission is becoming a more distant memory every day.
The government’s expectation is these “qualified advisers” will be employees of licensed financial institutions.
“The existing primary obligation to act in the best interests of the client and prioritise the interests of the client in the event of a conflict will remain at the core of the renewed standard,” the government said in its final response.
This is a departure from Levy’s recommendation that the best interests duty be retained for full-service financial planners only and that a “good advice duty” apply where the advice is simpler.
The statement of advice will be replaced with an advice record that is more principles-based.
The existing concessional treatment for personal advice provided by banks and general insurers on defined basic products will be maintained.
Ongoing fee renewal and consent requirements will be streamlined, including removing the requirement to provide a fee disclosure statement.