Quality of Advice Review Proposals Paper

Earlier this month, NIBA provided a response to the Quality of Advice Review consultation paper. The consultation paper was released following the extensive feedback provided to the Quality of Advice Review issues paper and contains a number of proposals that impact the provision of general risk advice.

The consultation paper acknowledged concerns raised during the initial consultation process around the need for regulatory reform, stating that the current regulatory framework is a “significant impediment to consumers accessing financial advice” that often prevents advisers from providing quality advice to their clients. Foreshadowing that changes to this regulatory framework will “need to be substantial if financial advice is going to be widely accessible and truly affordable”.

Among the proposals outlined in the paper are:

Changes to the definition of ‘personal advice’

The paper proposes that the definition of ‘personal advice’ be amended so that personal advice is “a recommendation or opinion provided to a client about a financial product (or class of financial product) and, at the time the advice is provided, the provider has or holds information about the client’s objectives, needs or any aspect of the client’s financial situation”. This differs from the current definition in that the provider of the advice must consider the clients’ objectives, needs or financial situation not just hold information relating to it. This proposal aims to remove the uncertainty around whether the advice being provided is personal advice.

Deregulation of ‘general advice’ as a financial service

The paper proposes to remove ‘general advice’ from the Financial Services Regulation regime, as well as remove the obligation to provide a general advice warning. Under this proposal, general advice will no longer be regulated as a financial service however existing consumer protections (including the prohibition on misleading and deceptive conduct) will still apply. In addition, if the provider of the advice also holds an AFSL, AFS license obligations will also apply.

Replace the current ‘best interest duty’ with an obligation to provide ‘good advice’

The paper states that the current best interest duty “has not been more effective than disclosure in protecting consumers from poor advice”. The paper proposes to replace the existing best interest duty and associated provisions with an obligation to provide good advice. Good advice is advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided. This proposal aims to encourage the provision of quality advice by shifting the focus from the steps the adviser has taken to the content of the advice being provided.

Remove the requirement to provide a Statement of Advice

When referring to SOAs the Independent Reviewer, Michelle Levy, states “I am not persuaded SOAs provide any real protection to consumers”. Rather than reduce the SOA content requirements, which the paper argues would result in shorter documents “full of templated text prepared by advisers (or more likely licensees) with an eye on defending a claim or regulatory proceedings rather than assisting their clients”, the paper proposes to remove the requirement for an SOA or record of advice altogether.

Instead, advisers would be required to maintain complete records of the advice they provide and to provide a written record of advice to clients upon request. The paper notes that these records may take many forms including emails, file notes, recorded phone calls, documents provided to clients etc.

NIBA provided a response to the proposals paper commending the review on the consultative approach taken to financial services reform and broadly supporting the proposed changes.

NIBA’s response noted that a number of the proposals appear to have been written with financial advisers in mind and further clarification would be required to ensure the proposals are appropriate for the general risk advice sector. In particular, NIBA expressed concerns about how advisers will be judged to have provided ‘good advice’ where a policy contains exclusions that may later be relied upon by the insurer to deny a claim.

NIBA’s response also highlighted that while the proposals may help to facilitate the provision of limited advice, consumers can only make informed decisions if they are aware that the advice they have received is limited. To this end, NIBA suggested that advisers who provide limited advice should be required to disclose that the advice they are providing is limited, the limitations of the advice being provided (i.e, the advice only relates to the product issuer’s products) and the implications of this.

The Review is yet to make any recommendations relating to broker remuneration with Treasury stating that they will consult with affected industries on any potential changes advisers once they have completed their analysis of the data provided by both general and life insurance brokers and insurers.

A final report will be provided to the Government by 16 December 2022. To view NIBA’s submission in full, click here.