The Treasury’s Quality of Advice consultation paper proposes to eliminate the concepts of personal and general advice, impacting financial advisers holding an Australian Financial Services Licence (AFSL).
The consultation paper proposes a range of changes, but the most radical suggestion is to expand the definition of personal advice to include some aspects of general advice – that is, any advice provided where the adviser knows information about the client’s personal circumstances will be deemed ‘personal’ (and regulated), even if the adviser did not actually consider it. The balance of advice currently classified as ‘general’ will become unregulated. This mean some general advice will be caught by the new definition of personal advice, including where advisers speak in generalities, though they have information on the client’s personal circumstances. However, this does not mean everyone who gives advice under the new model will need to comply with the best interests duty.
Duty to provide good advice
Treasury proposes to replace the following regulatory duties with a single good advice test:
- Best Interest Duty
- Appropriate Advice Duty
- Duty to Warn the Client
- Duty of Priority
The good advice test: whether the advice provided to a person is, in substance, ‘good advice’. This test allows financial advice providers to scale their advice based on the client’s situation.
It is proposed that ‘good advice’ will be defined as ‘reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided’. The financial advice provider will need to use their knowledge of the client and apply a substantive assessment of their advice output, ensuring the advice is relevant and beneficial for the client.
Changes will need to take place regarding both the Design and Distribution Obligations (DDO) and the Conflicted Remuneration provisions of the Corporations Act. Simplifying the conflicted remuneration provisions means financial advisers will need to question whether their client will benefit from their advice, or whether they will benefit more from providing the client with advice. If the financial adviser satisfies the question of whether they are acting in the interest of the client, and the client benefits more than the adviser, remuneration earnt is unlikely to be conflicted.
Impact on Financial Advisers
The paper also impacts the licensing obligations that apply to financial advisers. Pursuant to the proposals, generally speaking, the following activities would no longer be regulated as a financial service:
- Conduct seminars
- Make product comparisons
- Print or circulate newsletters
- Provide general advice on financial products where they do not know any personal information about the person receiving the advice
- Advertise financial products or services
Accordingly, if an individual participated in the delivery of one of these activities (and did not otherwise provide a financial service), that individual would not have to be authorised under an AFS licence.
The proposals outlined in the paper would remove much of the red tape and cumbersome compliance requirements surrounding the delivery of financial advice. The changes would also facilitate the development of, and increased access to, digital advice.
Treasury’s final report is due on 16 December 2022. Not all of the final proposals will be accepted and implemented by the Government, however we view this as an important step toward improving the quality of financial advice and increasing access to advice for clients (especially vulnerable clients) in Australia.
For more information, please contact Jaime Lumsden, Simon Carrodus or Stephanie McClelland.
