Govt makes QAR final report public

Mike Taylor

Managing Editor and Publisher

8 February 2023

The Federal Government has made public the final recommendations of the Quality of Advice Review with key elements around personal advice, general advice and relevant providers.

The following represent the top 12 recommendations.

Recommendation 1 – Personal advice

The definition of personal advice in the Corporations Act 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 of advice who has (or whose related body corporate has) information about the client’s financial situation or one or more of their objectives or needs. Personal advice means financial product advice prepared or adjusted for or directed to a particular client in circumstances where: a) the client tells the provider of the advice their financial situation or one or more of their objectives or needs; or b) the licensee responsible for the advice, or a related entity of the licensee, if the licensee is a body corporate, holds information about the client’s financial situation or one or more of their objectives or needs.

Recommendation 2 – General advice General advice should continue to be a financial service, but the requirement for a general advice warning to accompany general advice should be removed.

Recommendation 3 – Relevant providers Amend the Corporations Act to provide that personal advice must be provided by a relevant provider where: a) the provider is an individual; and b) either: i) the client pays a fee for the advice; or ii) the issuer of the product pays a commission for the sale of the product to which the personal advice relates. In all other cases, personal advice can be provided by a person who is not a relevant provider.

Recommendation 4 – Good Advice Duty A person who provides personal advice to a retail client must provide the client with good advice. Good advice means personal advice that is, at the time it is provided: a) fit for purpose having regard to: i) if the advice is: 1) given in response to a request, question or inquiry from the client, the purpose of the client that the provider is aware of or should reasonably be aware of; or 2) volunteered by the provider, the reason the provider reasonably considers the advice might be of use or benefit to the client; ii) the scope, content and nature of the advice; and iii) the likely relevant circumstances of the client; and b) in all the circumstances, good. If the advice is provided by a financial adviser (relevant provider), this duty applies to the financial adviser. In all other cases, this duty applies to the AFS licensee.

Recommendation 5 – Statutory Best Interests Duty The existing best interests duty and related obligations (the duty to give appropriate advice assuming the best interests duty is satisfied, the duty to warn the client if the advice is based on inadequate or insufficient information and the duty of priority if there is a conflict) should be replaced with a new statutory best interests duty. The new best interests duty would be a true fiduciary duty that reflects the general law and will not include a safe harbour. This duty will apply only to financial advisers (relevant providers).

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

Recommendation 7 – Deduction of adviser fees from superannuation 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.

Recommendation 8 – Ongoing fee arrangements and consent requirements The current provisions which require a provider of advice to give a fee disclosure statement to the client, to obtain the client’s agreement to renew an ongoing fee arrangement and the client’s consent to deduct advice fees should be replaced. Providers should still be required to obtain their client’s 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. The consent form should also authorise the deduction of advice fees from the client’s financial product and should be able to be relied on by the product issuer. The form should be prescribed.

Recommendation 9 – Statement of advice The requirement to provide a statement of advice (or record of advice) should be replaced with the requirement for providers of personal advice to retail clients to maintain complete records of the advice provided and to provide written advice on request by the client. Clients should be asked whether they would like written advice before or at the time the advice is provided and a request for written advice is required to be made before, or at the time the advice is provided. This requirement will not apply to a person who is currently exempt from the requirement to provide statements of advice (e.g. a person who provides personal advice about general insurance products). ASIC should provide guidance on how advice providers may comply with their record-keeping obligations.

Recommendation 10 – Financial Services Guide Providers of personal advice should either continue to give their clients a financial services guide or make information publicly available on their website about the remuneration and any other benefits the provider receives (if any) in connection with the financial services they provide and their internal and external dispute resolution procedures (and how to access them).

Recommendation 11 – Consent requirements for wholesale clients The Corporations Act should be amended to require a client who meets the assets and income threshold and who has an accountant’s certificate to provide a written consent to being treated as a wholesale client. The written consent should contain an acknowledgment that is given before they are provided with a financial product or service that: • the advice provider is not required to be a relevant provider and accordingly they will not have to comply with the professional standards; • the advice provider will not have a duty to give good advice or to act in the best interests of the client under the Corporations Act; • the advice provider is not required to give the client a product disclosure statement or financial services guide; and • the client will not be entitled to complain about the advice under the AFS licensee’s internal dispute resolution procedures or to AFCA. The existing consent requirements for sophisticated investors should be amended to require a written acknowledgement in the same terms.