How will good advice be defined?

Good advice was not among the recommendations initially accepted in the government’s June response to the Quality of Advice Review (QAR) final report, with Financial Services Minister Stephen Jones opting instead to place the measure under further scrutiny.

Speaking on an ifa webcast about the government’s response to the QAR, the chief executive of the Financial Advice Association Australia (FAAA), Sarah Abood, said the first step is to clarify whether the recommendation will be accepted.

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“It is going to be important to understand whether the good advice duty will be part of stream two,” Ms Abood said.

“Because certainly, when we listen to the minister, when we hear the way that those recommendations are being promoted and talked about, it’s very much that this is allowing people who are not financial advisers to give advice to people. That that would be a big change.”

Speculating that super funds are going to act as a trial run to find any “kinks” and that insurers could be the next cab off the rank, Ms Abood explained that the government could be looking at the existing duty of each sector to preference the interests of clients or members.

“Irrespective of whether the duty is the best interest of the member or good advice for the member, either way, you can’t just drag a backpacker off the street and stick him in a call centre. You need to be using people who have knowledge that will not blow the client up,” she said.

“Particularly, in the case of transition to retirement advice, there is a real danger that you can do a lot of damage to someone’s financial situation that’s hard to resolve at transition to retirement. And when that’s collectively charged, then clearly that’s something that our members are quite concerned about.”

QAR lead reviewer Michelle Levy, also speaking on the ifa webcast, added that while she understands the urgency to address the gap in advice that exists for people when they get to retirement age, there is a slight worry around using super funds as an experiment.

“The reason for saying that is, to Sarah’s point, that where advice is needed, it’s often the more complex advice,” Ms Levy said.

“My recommendations were not that the person dragged off the street, to the extent that was ever part of the recommendation, would be giving complex advice. So, the good advice duty and marrying it also with somebody who isn’t a financial adviser providing advice, is very much intended to target simple advice, often underpinned by or if not solely provided digitally.

“What it’s recognising is that the advice isn’t in fact given, there’s no discretion in the provider, the individual, the person dragged off the street, to use Sarah’s word. The advice is actually prepared by and given by the institution.”

She reiterated that the purpose of this part of the advice spectrum would be “very simple advice”.

“I would’ve thought that the more difficult advice is still given by a financial adviser. And if the person is a financial adviser, in my view, they should and will have professional fiduciary obligations, which it’s not appropriate to impose on somebody who is not a financial adviser and who is just doing what their employer tells them to do,” Ms Levy said.

“So, I’ve said for those reasons, I am a bit nervous about stream two and superannuation funds and how this will play out. But again, maybe it’ll be great, maybe it’ll work really well, and I hope so. My fingers are crossed.”

Ms Levy had previously stressed that “a duty to give good advice is not intended to be a duty to give ‘OK advice or ‘good enough’ advice”.

“It is unlikely to be good advice to recommend a poorly performing superannuation product. It will not be good advice to recommend that a person who is unable to pay their mortgage open a term deposit and it will not be good advice to recommend a life insurance product that does not provide the protection the customer needs,” she wrote in the final QAR report.