Levy’s QAR challenge – getting the devil out of the detail

ANALYSIS

The most obvious challenge for the Quality of Advice Review (QAR) is colouring-in the grey area between financial advisers who are “relevant providers” and those working for superannuation funds, banks or other financial institutions who are not “relevant providers” but will nonetheless be delivering advice. 

It is now a full two weeks since the chair of the QAR, Michelle Levy, stopped receiving submissions and generally consulting stakeholders around the Review’s initial proposals and she and her team within Treasury must already recognise that the primary friction point is much the same as it has always been over the past decade – the dividing lines between general, intra-fund and personal advice. 

Her proposals pragmatically recognised that fully-fledged and highly-regulated financial advice would remain expensive while general and intra-fund advice represented the vehicles via which to deliver on the Government’s ultimate objective – affordable advice. 

Because what cannot be forgotten is that when the former Liberal/National Party Government first turned its mind to a review it took the form of the Affordable Advice Review run by the Australian Securities and Investments Commission (ASIC). 

Key industry stakeholders were quick to point out that, given the impact of regulatory costs on the provision of financial advice, ASIC was a somewhat ironic vehicle via which to determine whether financial advice could be made more affordable. 

In the end, and amid significant political blow-back, the former Government announced that the ASIC’s Affordable Advice Review together with the review of the Life Insurance Framework (LIF) would be rolled into a broader review to be undertaken by Treasury with Levy later being announced as the independent chair. 

Interestingly, even in the earliest stages of ASIC’s Affordable Advice Review process it was being freely canvassed that the key elements to making advice more affordable were a culling of the multiple regulatory overlays, general and intra-fund advice delivery via superannuation funds and digital advice.  

Little has therefore changed with respect to the fundamentals of the argument, but what has changed is the degree to which the key financial advice bodies, those making up the Joint Association Working Group, want to ensure that the status and standing of their members is not undermined by the provision of advice by others. 

The submission of the Association of Financial Advisers (AFA) was typical of the position adopted by the broader association stakeholders in insisting that controls be put in place to ensure that “controls” should be put place to limit the type of advice provided by non ‘relevant providers’ to “simple advice”. 

This, of course, is at odds with the position of the superannuation groups such as the Association of Superannuation Funds of Australia which have argued that the advice they provide should extend to transition to retirement and post-retirement advice. 

“ASFA also supports the proposal for the Sole Purpose Test within the SIS Act to be amended to provide trustees with clarity beyond doubt that they can provide personal advice to members about their interests in a fund and to apply fund assets to meet the cost of providing advice to members about their interest in the fund,” the ASFA submission said. 

“This would support the provision of advice to members in the retirement phase including consideration of assets and liabilities, social security entitlements and aged care needs.” 

ASFA’s position stands in stark contrast to that expressed by the AFA which said it had no objections to super funds providing the full range of financial advice services to their members, “where they are relevant providers and where the members are paying directly for the financial advice”. 

“Collectively charged fees (intra-fund advice) is a different matter for our members, who have three primary concerns: 

• Intra-fund advice is limited to advice about the members interest in the fund, and therefore it is intrinsically conflicted, and thus may not be in the best interests of the member. There is inadequate warning of this risk.
• The collective charging of fees by super funds, under Section 99F of the SIS Act has the effect of misrepresenting the value of financial advice. If people can get it for free, then it appears to be less valuable and why would they pay the market rate for it in the future.
• Intra-fund advice is a form of cross-subsidisation, where those who do not use the service pay for those who do. Advisers argue this is a form of Fee for No Service.

“Despite these views, we believe that in the context of the decline in adviser numbers, and the difficulty in accessing financial advice, particularly with respect to simple advice, that intra-fund advice has a key role to play. We do, however think that it should be limited to simple advice. We are concerned that these proposals do not place a limit in terms of complexity, as is currently the case through Section 99F of the SIS Act.” 

Levy is scheduled to present her findings to the Government by 16 December – as is usually the case, the challenge for her will be getting the devil out of the detail.