The government’s Quality of Advice Review (QAR) response was unveiled by Financial Services Minister Stephen Jones on Tuesday, in which he confirmed that the government would adopt in full or in principle 14 of the 22 recommendations.
The 14 recommendations will be adopted under three streams, with the first stream set to predominantly prioritise recommendations that will streamline the process of giving advice through current channels.
“In terms of priority, I believe it is more urgent that we fix the problems for financial advisers,” Mr Jones said.
Stream two, which the government has accepted in principle, will involve amending restrictions on collective charging, enabling superannuation funds to offer enhanced retirement advice and information to their members. Furthermore, it will make it easier for funds to individually charge their members for the personalised advice they receive.
But while Mr Jones did not rule out implementing any of the recommendations at this stage, reviewer Michelle Levy’s proposal that would see the introduction of a new good advice duty will be subjected to further consultation.
Namely, Ms Levy proposed replacing the best interests duty with the duty to provide good advice under recommendation four of her final report.
This new obligation, which would be enshrined in the Corporations Act, would apply to all providers of personal advice to retail clients, while a new statutory best interests duty would only apply to relevant providers of advice or advisers.
The good advice duty formed the basis of her recommendation for superannuation funds, banks, and insurers to expand their role in financial advice.
Offering insight into how the good advice duty would work in practice, Ms Levy explained in her final report that “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.”
However, this good advice recommendation is among the eight recommendations Mr Jones plans to interrogate further.
On Tuesday, he clarified that once superannuation funds are permitted to offer retirement income advice, approximately 5 million Australians who are either at or approaching retirement will gain access to a range of retirement income advice services.
But on Ms Levy’s recommendation for banks and insurers to enjoy the same privileges as funds, he said: “I’m just not compelled that the same urgency exists in these other spaces”.
“There is also a difference between the obligations that cover these institutions and superannuation funds,” he said, adding that super funds are “already governed by strong obligations to act in the best financial interests of members”.
“I’m not compelled that the model that has been proposed in the review is fit-for-purpose for these other sectors as is, even where there is a need,” Mr Jones continued, alluding to Ms Levy’s good advice model.
Acknowledging that the “review has given us some principles to guide the conversation”, he said that “right now, more is needed to get it to the point that it can make a meaningful difference”.
“Those who understand this space know that there is more work to do to, even if you support the direction.”
But he assured that he is “not ruling it out”.
“As Treasury is working on implementing the recommendation for superannuation funds to provide more advice, it will explore with industry what would be required to tailor the model for other institutions.”
Treasury is also set to probe the good advice duty, alongside Ms Levy’s proposal to broaden the definition of personal advice.
Mr Jones had previously hinted that he could allow superannuation funds to expand their role in advice, while sidelining the banks.
At the time, in March this year, Ms Levy told ifa she was disappointed by what was implied.
“I am worried he may introduce them for super funds and not also banks and insurers,” the QAR lead said.
“This I think is because super funds have a duty to act in the best interests of members. I do not think there should be different treatment across them,” she explained.
In a document that accompanied Mr Jones’ speech to ASFA, made available to ifa, it was confirmed that the government’s next consultation will test how proposals, such as the good advice duty, might operate under different advice models, including digital advice models, and across sectors.
“Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections.”
Consumer groups, in particular, have been fairly vocal in their opposition to Ms Levy’s recommendations regarding banks and super funds.
Also in March, Choice and a number of other consumer groups penned a letter to Mr Jones throwing their support behind several QAR recommendations while reiterating their opposition to the return of banks, superannuation funds, and insurers to advice.
They argued that if the review’s recommendations in this area were implemented, “this would create an environment in which the sort of conduct that led to the banking royal commission could re-emerge”.
“We also note that the proposed ‘good advice’ test is vague and poorly defined,” they said, adding that the introduction of this test would likely involve a costly transition.
The groups, however, conceded that access to advice for the growing number of people with super approaching retirement needed to increase.
“Rather than the sweeping reforms across the superannuation, banking and insurance sectors recommended by the review, we recommend that the government focus the next stage of consultations on public and private measures that could improve access to advice for people in the retirement phase,” the groups said.
This, they noted, could be achieved through a targeted process led by Treasury, focusing on improvements to the quality and accessibility of relevant government programs, and scope and regulation of retirement phase intra-fund advice.
