A proposals paper seeking feedback on 12 possible options for reform of the financial advice regulatory framework have been recently released for consultation, to facilitate the Hayne implementation.
Overview – Hayne implementation
On 29 August 2022, Treasury released the proposals paper, according to which, the proposed changes aim squarely at improving retail clients’ access to high-quality, accessible, affordable advice.
The date submissions were submitted by 23 September 2022.
We provide a detailed overview of the proposed options for comment and a summary of the inceptive response to the changes.
Time for a change in approach?
Reinforcing all of the proposals in the paper is the premise that the current thinking behind the regulation of advice is flawed. Because to regulate adviser conduct and protect consumer interests, undue emphasis has been placed on the process. Thus, imposing a substantial compliance burden on advisers and contributing to accessibility and affordability pressures. The proposal’s paper challenges that this approach has not always resulted in better consumer outcomes.
In consideration of this, it is suggested that a more direct and suitable way to regulate the provision of advice is to start precisely where the current regime does not, which is – with the content of the advice. Consumers want good advice, not documents and processes, and advice can be more easily measured and assessed than conduct.
12 Proposals for reform – Hayne implementation
It is proposed that:
- ‘Personal advice’ should be regulated as a financial service, and not as general advice
- General advice ought not be regulated as a financial service
- Reformulate the definition of ‘personal advice’
- Institiute a new obligation to provide ‘good advice
- ‘Relevant providers’ would continue to have the best interest duty under the Code of Ethics
- Superannuation fund trustees ought to be able to provide advice to members
- Superannuation fund trustees should have the discretion to decide how to charge members for advice
- Superannuation trustees ought to be able to pay a fee from member’s accounts to an adviser for personal advice provided
- Simplifying DDO reporting
- Intrafund advice
- Advice Fees
- Time to implement the proposed changes
The inceptive response to the proposed changes has been mixed
In a statement, consumer groups the Consumer Action Law Centre (CALC), CHOICE, Financial Counselling Australia, and the Financial Rights Legal Centre (FRLC) put forward concerns that the suggested changes will significantly dilute ‘core consumer protections’. In particular, the groups voiced concerns about the proposed repeal of the best interests obligation. CHOICE CEO Alan Kirkland declared:
‘If the government removes the best interest duty as proposed in this report, we’ll go back to the bad old days that allowed scandals like those involving Commonwealth Financial Planning and Storm Financial to occur.’ He further commented that it would be an incredible disappointment to the victims of financial advice scams who gave evidence to the Royal Commission. The changes would set consumer protections back 15 years and it is as if the Banking Royal Commission has already been forgotten, he said.
Furthermore, Consumer Action Law Centre CEO Gerard Brody expressed one of the six principles of the Financial Services Royal Commission is “when acting for another, act in the best interest of the other”.
Considering a history of mis-selling, upselling, and indecorous cross-selling in the finance sector, we should not be abnegating this important principle. Recent reforms to impede mis-selling and inappropriate cross-selling, such as the ban on unsolicited selling financial products or the deferred sales model for add-on insurance, address problems that cost Australians hundreds of millions of dollars. Any reform to advice laws needs to ensure that people are only sold products that are in their best interests.
Inversely, a joint statement by 12 industry associations was more supportive. The joint statement states that the paper sets out proposals to make it more feasible for consumers to have meaningful, purposeful conversations with their advice provider regarding all or part of their financial and lifestyle objectives while maintaining strong consumer protections. Which is an objective of the JAWG (the Joint Association Working Group), of which all 12 industry associations are members.
Vogue Advisory Group – Keeping you up to date with changes in the financial sector
If you have questions concerning changes in the financial sector, please contact us and one of our licensed financial advisors will assist you.
