QAR draft proposes new focus on ‘good advice’

The Quality of Advice Review's preliminary findings have proposed a number of reforms for the financial advisory space, including a greater focus on providing 'good advice'.

In the consultation paper, QAR lead, Michelle Levy, defined ‘good advice’ as 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”.

Levy also proposed removing the best interests duty after arguing that evidence suggests it has not been more effective in protecting consumers from poor advice than disclosure.

A requirement for a person who provides personal advice to provide ‘good advice’ would replace the best interests duty as well as the appropriate advice duty, the duty to warn the client and Chapter 7's duty of priority.

The QAR consultation paper also proposed the financial services regime should regulate the provision of ‘personal advice’, the scrapping of ‘general advice’ and that superannuation trustees should be able to provide personal advice to their members.

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"The purpose of the review is to consider whether changes should be made to the regulatory framework applying to financial advice to improve the accessibility and affordability of financial advice," Levy said.

The full 12 proposals included in the QAR consultation paper are:

What should be regulated?

1. The financial services regime should regulate the provision of ‘personal advice’. The definition of ‘personal advice’ should be somewhat broader so that it is clear it applies whenever a recommendation or opinion is 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 their financial situation.

2. The regime should no longer regulate ‘general advice’ as a financial service and the definition should be removed together with the obligation to give a general advice warning.

How should personal advice be regulated?

3. The financial services regime should require a person who provides personal advice 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.

4. A provider of personal advice should be a ‘relevant provider’ where the provider is an individual and the client pays a fee for the advice, the provider (or the provider’s authorising licensee) receives a commission in connection with the advice, there is an ongoing advice relationship between the adviser and the client, or the client has a reasonable expectation that such a relationship exists. The professional standards would not apply to a body corporate nor to an individual who is not a relevant provider.

Intra-fund advice and paying for advice through superannuation

5. Superannuation fund trustees should be 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 would 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 provision of the advice.

6. Superannuation fund trustees should have discretion to decide how to charge members for personal advice they provide to members and the restrictions on collective charging of fees should be removed.

7. Superannuation 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.

Disclosure documents

8. Providers of personal advice should obtain annual written consent from their client to deduct ongoing advice fees from a financial product. The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the course of the upcoming 12 months. Where advice fees are deducted from more than one product, a single consent form should cover each of the products issued by a product issuer.

9. Providers of personal advice should be able to determine what form of advice would best suit their clients. Providers should be required to maintain complete records of the advice they provide and to provide a written record of advice to a client on request. This would replace the current requirement for advisers to provide a statement of advice or record of advice.

10. Providers of personal advice should either continue to give their clients a copy of the financial services guide or make information available to their clients on their website about their remuneration and other benefits they receive, their internal dispute resolution procedures and AFCA. This information should be available at the time the advice is provided. This would offer advisers increased flexibility in how they provide information to their clients.

Design and distribution obligations

11. The reporting requirements under the design and distribution obligations regime should be simplified by requiring relevant providers to only report to the product issuer where they have received a complaint in relation to a financial product.

Transition period and enforcement

12. There should be an adequate transition period for implementing these changes. Consideration should also be given to allowing providers to 'opt in' early.