In a bid to increase the accessibility and affordability of quality financial advice, the government had previously commissioned a report into possible changes in the regulatory framework. The final report has now been released, containing 22 recommendations. According to the author of the report, Ms Michelle Levy, the current regulation of financial product advice focuses on providers and not consumers, and is itself an impediment to consumers getting useful guidance and good financial advice.
The recommendations are therefore more consumer-focused, and are wide-ranging. The following offers just a snippet of the relevant recommendations in relation to financial services:
- Broaden the definition of personal advice: The definition of personal advice in the Corporations Act 2001 should be broadened so that all financial product advice will be personal advice if it is given to a client in a personal interaction or personalised communication by a provider who has information about the client’s financial situation or their objectives and needs.
- Personal advice must be provided by a relevant provider: The Corporations Act should be amended to indicate that personal advice must be provided by a relevant provider where the provider is an individual and either the client pays a fee for the advice, or the issuer of the product pays a commission for the sale of the product to which the personal advice relates.
- Introduce a good advice duty: An individual who provides personal advice to retail clients must provide good advice. “Good advice” means personal advice that is, at the time it is provided, fit for purpose and, in all circumstances, good.
- Introduce a new statutory best interests duty: The new best interest duty would be a true fiduciary duty that reflects the general law and does not include a safe harbour. This duty would apply only to financial advisers.
- Implement new ongoing fee and consent arrangements: Providers would still need to obtain their clients’ 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 consent form should explain the services that will be provided and the fee the adviser proposes to charge over the following 12 months.
- Change the requirement to provide a statement of advice: The existing requirement to provide a statement of advice should be replaced with the requirement for a provider to maintain complete records of the advice provided and to give written advice on request by their client. Clients should be asked whether they would like written advice, before or at the time the advice is provided.