The government released advice review lead Michelle Levy’s final proposals on Wednesday morning, kicking off a consultation process to a wide set of recommendations including giving more scope for super funds to offer personal advice to members.
“Anyone with an interest in financial advice should read it and make their views known,” financial services minister Stephen Jones said in a media release.
“We want to see an industry with strong professional standards that’s accessible for more Australians and look forward to hearing views on achieving that goal.”
Levy made 22 recommendations, most notably suggesting amending the Corporations Act that personal advice must be provided by a relevant provider if the provider is an individual and either gets paid a fee by the client for the advice or the issuer of the product pays a commission.
Door opens for super funds
The final proposal opens the door to give super funds more room to provide advice with trustees being able to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement.
“In doing so, trustees will be required to take into account the member’s personal circumstances, including their family situation and social security entitlements if that is relevant to the advice,” Levy said.
“Superannuation fund trustees should have the power to decide how to charge members for personal advice they provide to members and the restrictions on collective charging of fees should be removed.”
She also recommended trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund on the direction of the member.
In all other cases, personal advice can be provided by a person who is not a relevant provider, which is likely to cause friction with the minister’s goal of keeping super funds and banks away from bringing back conflicted advice models.
General advice should continue to be a financial service, she proposed, but the requirement for a general advice warning to accompany general advice should be removed.
The duty to give ‘good advice’ is still a key recommendation, which will function as a principles-based version of the best interest industry duty.
The existing duty and related obligations have been recommended to be replaced with a new statutory best interests duty. The new duty would be “a true fiduciary duty” that reflects the general law and will not include a safe harbour.
Levy maintained her position on retaining life insurance commissions, keeping commission and clawback rates at the current levels of 60 per cent upfront commissions and 20 per cent trailing commissions, with a two- year clawback.
Rolling back red tape
The profession was expecting “easy wins” after Levy’s interim report suggested reducing much of the prescriptive documenting requirements which Levy has largely followed through.
Levy recommended providers should still be required to obtain their client’s consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single consent form.
The prescribed form should explain the services being provided and the fee being charged over the following 12 months, including a summary of the deduction of advice fees from the client’s financial products.
Statements of Advice will still go but there will still be a requirement for providers to maintain comprehensive records and provide written advice on request. Additionally, ASIC should provide guidance on compliance.
However, for wholesale clients, she recommended the Corporations Act be amended to require a client who meets the assets and income threshold – and who has an accountant’s certificate – to provide a written consent to being treated as a wholesale client.
This distinction has been made because the provider of advice in this instance will not need to be a relevant provider nor will they have to comply with professional standards, have a duty to give ‘good advice, or give a PDS or FSG. The client will also not be entitled to complain about the advice via internal dispute resolution processes or AFCA.
When it comes to FSGs, providers of advice should either continue to supply them to clients or make it freely available on their website. The guide should include information about remuneration and other benefit the provider receives, as well as details about internal and external dispute resolutions.
For DDO, the regime should remain in place for product producers, but for advice providers three requirements should be removed: reporting significant dealings outside the target market to the product issuer, compliance with the additional reporting obligations specified by the product issuer in the target market determination, and reporting to the product issuer where there have been no complaints during the specified reporting period.
Those who are not relevant providers will not be eligible to use those exemptions.
‘Recipe for another Royal Commission’
The report has been welcomed by much of the industry in press releases from the Financial Planning Association, the Financial Services Council, Insignia Financial, and the Council of Australian Life Insurers, but there are dissenting voices from consumer groups Choice and Super Consumers Australia.
Choice CEO Alan Kirkland said the changes from proposals consumers to unacceptable risk when obtaining financial advice from a bank or super fund.
“This report is a recipe for another Royal Commission,” he said.
“The biggest scandals in financial advice have involved large banks and super funds, yet they will be the greatest beneficiaries of the recommendations in this report. They will be able to undercut independent professional advisers by pushing out cheap and shoddy advice on a mass scale, provided by unqualified staff.”
However, Kirkland said the government should be encouraged to focus on “practical reforms” to help accessibility and affordability of advice while maintaining adequate consumer protections.
“We agree that there’s still plenty the government can do to improve regulation of advice, starting with reforms to the meaningless reams of information that consumers currently receive from advisers,” Kirkland said.
Sister publication Professional Planner will host Stephen Jones in an industry Q&A on 13 March in Sydney, 14 March in Brisbane, and 16 March in Melbourne.
