The definition of personal advice should be widened to include all financial product advice given in response to a client’s specific needs or objectives and that advice should be fit for purpose, according to recommendations from the Quality of Advice Review (QAR).
The recommendations are part of the final report provided by QAR chair Michelle Levy to the federal government in mid-December and released today by Financial Services Minister Stephen Jones. He made no comments on the report apart from thanking Levy for her work and stating the government will consult widely on the review’s recommendations.
The report contains a total of 22 recommendations across 13 areas considered as part of the QAR, with six of those recommendations related to the direct provision of advice to consumers.
The first of these recommendations stated “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 information about the client’s financial situation or one or more of their objectives or needs”.
The recommendation added advice would be considered personal when a client tells an advice provider their financial situation or one or more of their objectives or needs or the licensee responsible for the advice holds information about the client’s financial situation or one or more of their objectives or needs.
Given this expansion, recommendation 2 stated general advice could still be offered, but the requirement for a general advice warning to accompany it should be removed.
Building on these two proposals, recommendation 3 stated the Corporations Act should be amended so that personal advice must be provided by a relevant provider, that is an adviser, where the provider is an individual and the client pays a fee for the advice or a product issuer pays a commission for the sale of the product to which the advice relates.
Commenting on this recommendation, the report stated that if adopted “in every case in which the Corporations Act does not require a relevant provider to give personal advice, it will be a matter for the Australian financial services licensee to determine whether the personal advice can be provided by an individual who is not a financial adviser, if an individual is providing the advice at all”.
“This recommendation will mean that financial institutions and advice firms will be able to employ and train people with different backgrounds and experience to help them provide personal advice to their customers and clients,” it stated.
“With appropriate training, guidance and supervision, they will be able to give simple and limited scope advice as and when customers ask for it.
“Financial advisers will continue to provide more complex advice covering a broader range of topics and products than product issuers. That advice will have greater value for their clients than simply the products they recommend and only financial advisers will be able to charge a fee, or receive a commission, for their advice.”
It also recommended a good advice duty be introduced that requires advice to be fit for purpose when given in response to a request from a client and also considers the “likely relevant circumstances of the client”.
This duty would interact with a further recommendation to replace the existing best interests duty (BID) and related obligations with a statutory BID that would be “a true fiduciary duty that reflects the general law” and does not include a safe harbour.
