The Quality of Advice Review – an initial view

The Quality of Advice Review – Final Report, has been released by Treasury. In general terms the recommendations are similar to the draft proposal issued in August 2022, albeit the Final Report contains some new items and minor amendments.

In our previous Quality of Advice Review blogs, The Draft Proposals and Non-Relevant Providers, we discussed our thoughts on the adviser, “Good Advice”, record keeping and potential implications for Relevant and Non-Relevant Providers. Assuming the recommendations are adopted by Government, we can turn our attention to two key questions:

1. What will the customer experience look like and how will business models need to shift?
2. What are the key compliance considerations for both product distributors and issuers

We will be unpacking these questions in more detail in upcoming blogs including the likely role and emerging importance of digital advice, but for now we reflect at a high level on what some of the final recommendations may represent for a range of relevant sectors.

Relevant Providers – Financial Advisers

Expected key impacts of the recommendations include:

• Simplification of administration in the provision of advice with the removal of the obligation to provide a Statement of Advice (SOA) and Record of Advice (ROA); consolidation of opt in, fee disclosure and fee consent obligations.
• Removal of the safe harbour steps to be replaced by a revised Best Interest Duty and a new “Good Advice” duty.
• Additional administration (and client protections) in the form of client consent obligations for life insurance commissions as well as wholesale client classification.
• A clarified/simplified regime to provide scaled advice.Increased support from digital tools.
• Simplified payment from customer superannuation accounts in appropriate circumstances.

Financial Advice Licensees will need to consider how their operating and compliance models may evolve to facilitate a new advice process. Particular attention should be given to the continuing obligation to maintain accurate records in circumstances where currently the SOA/ROA often provide that record. Whilst there are many advantages, removing the SOA/ROA has other implications that must be considered. This includes satisfying AFCA, IDR, regulatory and professional indemnity requirements.

It will likely take some time for the industry to adapt to a fiduciary duty without a safe harbour. Nevertheless, the recommendations present an opportunity to streamline, enhance and automate business processes and to strengthen an organisation’s compliance framework.

Non-Relevant Providers

Expected key impacts of the recommendations for Non-Relevant providers include:

• When moving from a general advice to personal advice model, the requirement to meet the “Good Advice” duty will have an impact on:

1. sales processes and procedures;
2. record keeping;
3. monitoring and supervision of sales and services interactions with customers (particularly face to face and via call centres);
4. a significant uplift in systems and staff training.

• There will be additional processes including obtaining consent for commissions relating to general, life and consumer credit insurance products.
• From a Design & Distribution Obligation (DDO) perspective, there may be impacts for both distributors and issuers. For example, distributors may need to consider the relationship between Target Market Determinations and the more detailed personal information provided by a customer of their relevant circumstances in the engagement process. Similarly, product issuers may need to consider how “Good Advice” markers might play into their third-party oversight.

Superannuation funds

The recommendations seek to expand options around advice which may be provided to members and to clarify other aspects relating to the payment for advice provided including:

• Removal of uncertainty about the collective charging of fees.
• Simplification and clarity in relation to the ability to deduct advice fees from super and the ability to rely on member consent to deduct advice fees in appropriate circumstances.
• An expansion of the intra-fund advice and in particular the ability to advise members more comprehensively on their interests in the fund. This would complement the Retirement Income Covenant which requires trustees to develop strategies to improve outcomes for their members in retirement.
• A higher propensity to adopt digital advice tools to support or augment current advice offerings.

The implications for super funds merit deeper consideration which we intend to unpack in a future blog.

What next

The government proposes further consultation before it concludes on its support for change and any recommendation is legislated. The appropriate protection of consumer interests will be a key point of contention.  Change to the financial advice framework in response to the recommendations will likely therefore be some time away. Notwithstanding, given the prospective changes are significant early consideration should at least be given to the potential impact on operating models.

We will continue the analysis of the impacts of the recommendations on business models and compliance frameworks in subsequent blogs.

If you would like to discuss this or related topics, please reach out directly to our authors.