The head of the Quality of Advice Review, Michelle Levy, has revealed the exercise exposed the need for a more flexible standard to be applied to the industry, which resulted in the good financial advice principle being one of the main recommendations from the process.
“We need to encourage banks, financial institutions, insurers [and] everybody to use the information that they have to give advice to their customers. So if you expand the range of circumstances in which you are giving personal advice, you need a standard that adjusts to the circumstances and to the needs of the client and I don’t think the best interest duty does that,” Levy told delegates at the AFR Super & Wealth Summit 2022 held in Sydney today.
“[The best interest duty] doesn’t cope very well with being an employee of a product issuer, whether that’s a superannuation fund or a bank or an insurer [in these situations]. So then I thought about what is it, what can we have that is fit for purpose.
“So I am thinking about a duty to give good advice because [they are the words] people keep using when they describe what they want and what they want to give.”
The definition of good advice is something she is still currently formulating, but confirmed it will be one based on the principle of being fit for purpose.
“[This means] if the person has come to see you [in your capacity as an adviser], what have they come to see you for and does your advice then meet that purpose and that’s the way I’m thinking about it,” she noted.
She pointed out the implementation of a good advice standard did not make the best interest duty obsolete.
“The best interest duty has not gone. The best interest duty will apply to somebody who is acting as an intermediary,” she said.
To this end, she refuted accusations the recommendation to implement a good advice standard was ignoring the key findings of the Hayne royal commission.
“He talked about a person who is acting as an intermediary, somebody who has assumed an obligation to act in your interests, well then they will have that obligation to act in your [best] interest,” she said.
“So the financial adviser who is paid to provide personal advice will continue to have that duty.”
