The Financial Services Council has welcomed the Government’s response to the Quality of Advice Review and its commitment to remove costly red tape imposed on financial advisers this year.
The Government announced the Delivering Better Financial Outcomes package adopting the bulk of the recommendations made in Michelle Levy’s Quality of Advice Review (the Review) to be developed over the second half of 2023 and early 2024 and broken down into three streams of consultation.
Stream one: Financial Advice
- Abolishing the safe harbour steps for meeting the Best Interests Duty.
- Replace the Statement of Advice with a financial advice record.
- Simplifying fee consent and renewal requirements.
- More flexible requirements around the displaying of Financial Services Guides (FSGs).
- Standardising consents for determining wholesale and sophisticated investors.
- Tightening the ban on conflicted remuneration and consent requirements for commission in life insurance.
Stream two: Superannuation funds
- Implementation of Recommendation 6 of the Review to remove restrictions on superannuation funds to provide retirement advice and information to their members.
- This consultation will also consider changes to the definitions of personal advice, general advice, relevant providers and the introduction of a Good Advice Duty as proposed by the Review in Recommendations 1-4.
Stream three: New models
- Consult on the expansion of a Good Advice Duty to non-relevant providers not including banks that would also consider an expanded definition of personal advice.
- Removal of the general advice warning.
- Amendments to the design and distribution obligations.
- Finalise implementation for Stream 1 proposals to abolish the statement of advice and removal of the safe harbour steps.
FSC response
The FSC supports the implementation of the Levy Report’s recommendations in full and many of the changes reflect the recommendations of the FSC’s 2021 White Paper on Financial advice. A full copy of the FSC’s media release is available here.
Next steps
From here, the Government has indicated consultation will commence by the end of June this year, and will concurrently look at implementation details of particular streams.
Some measures may just move to Exposure Draft legislation (consent requirements, FSGs or removal of exemptions) others will require implementation detail consultation (e.g. what does a reduced Statement of Advice look like, outright or partial removal of the safe harbour steps). This will also consider what rules need to be in place in order for superannuation funds to provide more personal advice and whether this model can be extended to banks fund managers and insurers.
The Government would aim to finalise the package by October.
The FSC will engage the Government as it consults on the three streams of reform and submissions will be developed with input from relevant working groups and board committees.
The Government’s response document is available here.
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Analysis: Government’s Response to the Quality of Advice review versus the FSC’s White Paper
The below table offers a high-level comparison between today’s announcement and the FSC’s White Paper on financial advice released in 2021.
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FSC White Paper on Financial Advice |
Government's Delivering Better Financial Outcomes Package 2023 |
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Safe harbour steps abolished, Best Interests Duty retained and Code of Ethics amended.
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Safe harbour abolished and Best Interests Duty retained with consultation on practical implementation and interaction with the Code of Ethics and applicable to relevant providers as per Recommendation 5 of the Levy Report. This proposed that the Best Interests Duty apply to relevant providers while a Good Advice Duty should apply to non-relevant providers. This consultation would adopt the White Paper position with respect to relevant providers, and goes further proposing a Good Advice Framework for non-relevant providers. |
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Statement of Advice and Record of Advice abolished while retaining record keeping requirements and introducing a short-form Letter of Advice (LOA) with scalable advice obligations introduced. |
Statement of Advice replaced, consultation on short form of documents (e.g. LOA-like documents). It will simplify requirements for the provision of Financial Services Guides (FSGs). |
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The Government should work with the industry to improve the take-up and effectiveness of electronic methods of disclosure, consent, and transactions, including through standardised processes and forms. |
The Government will require a Standard Form of industry and abolish Fee Disclosure Statements (FDSs). |
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Legislate and expanded definition of a personal advice and general information. |
Government will consult on a broader definition of personal advice to be delivered under a Good Advice framework for non-relevant providers (e.g. superannuation funds and then ‘other institutions’ except banks). |
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Wholesale client asset test threshold increased and indexed expanding the consumer protection framework to 275,000 consumers. |
The Review of the wholesale investor test asset thresholds has already been adopted in the Government’s Review of Managed Investments Schemes (MISs), the package announced will examine the process for securing a consent to become a wholesale or sophisticated investor. |
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On Good Advice: The Good Advice Duty advocated by Michelle Levy went beyond the White Paper and provided a framework for non-relevant providers (e.g. superannuation funds or banks) to provide financial advice which is fit for purpose while retaining the ban on conflicted remuneration and tightening exemptions to it. The Government has committed to consult on expanding intra fund advice with regard to the application of a Good Advice Duty (Stream 2) before committing to Stream 3 which would provide for the delivery of good advice by ‘other institutions’. Each of these consultations will consider this against other protections such as the Design and Distribution Obligations and the outputs of reforming the Best Interests Duty. |
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