Speaking exclusively with ifa, Financial Services Minister Stephen Jones said that questions surrounding the good advice standard are at the heart of the ongoing debate about the third stream of the government’s Quality of Advice Review response.
The good advice duty was proposed by independent chair of the QAR Michelle Levy 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.
However, the measure was not among those initially accepted in the government’s response to the final report.
“Look, I’ve said in other forums that the good advice stuff is the one that I’ve tussled with the most and I’ve received advice from elsewhere on this as well. It would be fair to say that not everyone’s a fan,” Mr Jones told ifa.
“That’s not a reason to dismiss it, by the way. In any area, there will be people who agree and people who disagree. I’ve got to work my way through the benefits and the problems with it and balance those two things out.”
Importantly, the minister highlighted that enacting a whole new regulatory standard could result in any number of unintended consequences.
“I think people can be confident that we’ll resolve all the issues with the stream one stuff by allowing funds to provide scaled advice consistent with their trustee duties and obligations, their fiduciary obligations, and the other things that we put in place to close off those gaps. I’m confident that we can do that,” Mr Jones said.
“What I’m not confident about, I’ve got to say, is what the consequences would be of us introducing a whole new legal category that isn’t known, isn’t understood, has no jurisprudence behind it, no regulatory guidance behind it that every product manufacturer and licensee would then have to retool to meet their uncertain obligations around.
“What I’m not confident about is how long it would take something like that to implement and what the consequences of it would be. So, that’s what I mean when I say I’ve got to balance out benefits versus issues and problems involved in introducing a whole new legal category.”
The minister’s comments on the good advice duty are in conflict with the view of Ms Levy, who has consistently held that good advice is at the crux of the reforms. According to Ms Levy, in order for institutions to give good advice, the good advice duty needs to be put into practice.
Namely, Ms Levy has argued that implementing a duty of good advice could effectively reconcile the conflict between the two obligations currently confronting super funds – a duty to act in the best interests of the members as a collective, and the duty to act in the best interests of individual members.
Her view is that implementing the good advice recommendation from the QAR final report would actually help increase protections for consumers.
“A duty to give good advice is not, and is not intended to be a duty to give ‘OK’ advice or ‘good enough’ advice,” Ms Levy previously said.
Mr Jones has, however, argued that stringent regulations already govern superannuation funds, which mandate that they act in the best interests of their members.
Industry Super Australia — which represents funds including HESTA, Cbus, Australian Super, and Hostplus — has previously agreed with the minister, and warned earlier this year that replacing best interests duty “will materially change how advice is offered and regulated”.
“In our view, these proposals will likely lead to lower quality of advice.”
Similar concerns have also been raised by consumer groups such as Choice, which argued that best interests duty is a “critical consumer protection” and, as such, should not be removed.
To watch our full interview with Minister Jones, click here.
