Financial Planning

Good advice not tied to documents, processes

advice regulation content

The Quality of Advice Review has suggested regulation should focus on the content of advice instead of documents and processes.

Financial advice regulation should focus on the content of the advice rather than advice processes, according to the head of the Quality of Advice Review (QAR), who has suggested the best interests duty and statements of advice (SOA) be replaced with obligations to provide good advice.

The proposals were made in a consultation paper released by Treasury on behalf of the QAR and lead reviewer Michelle Levy, with the document stating the “current regulatory framework is a significant impediment to consumers accessing financial advice”.

“In my view a more direct and better way to regulate the provision of advice is to start precisely where the current regime does not – with the content of the advice,” Levy said in the paper.

“Consumers want good advice – not documents and processes. And advice can be more easily measured and assessed than conduct.

“What is good advice can and should be measured objectively in light of all of the relevant circumstances at the time the advice is given.

“The intention of a duty cast in this way is to focus attention directly on the consumer and the advice rather than on the provider and the process for formulating the advice.”

The paper noted a duty to give good advice created a different kind of responsibility on advisers than laws that prescribe processes and removed regulatory requirements relating to disclosure.

As part of this move, it stated financial service regulations should deal with the provision of personal advice, but no longer regulate general advice.

Personal advice will be widened to apply to whenever a recommendation or opinion is provided to a client about a financial product and, at the time the advice is provided, the advice provider has or holds information about the client’s objectives, needs or any aspect of their financial situation.

General advice would continue to be subject to general consumer protections, including the prohibition against engaging in misleading or deceptive conduct.

The paper added ‘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”.

“The obligation to provide ‘good advice’ would replace the best interests duty, the appropriate advice duty, the duty to warn the client and the duty of priority in chapter seven of the Corporations Act.”

Additionally, SOAs and records of advice will be replaced with forms of advice that advice providers would decide best suit their clients, with continuing obligations to retain complete records of advice and provide those to clients on request.

The paper noted these proposals were not final and further submissions, beyond the 3300 already received from advisers, could be made to the QAR by 23 September.

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