Home / Regulation / Safe harbour steps to go as Levy sticks (mostly) to the advice reform script

Levy made no major deviations in her final suite of proposals, with Treasury left to mull on a blueprint for reform that should usher in a less prescriptive, two-tiered advice regime. But there are a few tweaks that might raise eyebrows.

Michelle Levy has resisted pressure from consumer groups to dilute her suite of advice reforms aimed at increasing access to financial advice, releasing a final set of recommendations containing only minor changes from the original draft proposal.

Treasury released the 267-page final Quality of Advice Review report Wednesday morning after holding onto it since December 16. No response to the review was provided by assistant treasurer and financial services minister Stephen Jones, who will instead conduct another consultation on the proposals.

Advice will still operate on a two-tier level aimed at getting simple advice to the masses according to the review, with fee-receiving “relevant provider” advisers separated from “non-relevant provider” institutions like banks and super funds.

Best interest duty won’t apply to non-relevant providers, which will pave the way for those institutions to re-enter the advice sphere.

For registered financial advisers, best interest duty will be scrapped in its current form and codified into a statutory law, however the seven ‘safe harbour’ steps – which have become a compliance bottleneck since being introduced as part of the 2013 Future of Financial Advice reforms – will be scrapped.

The bottom-line imperative to provide “good advice” will be retained, with Levy maintaining the focus on advice being “fit for purpose”.

As per the original suite of recommendations, advisers will no longer need to produce statements of advice unless requested by clients, but must keep records of the advice being provided. (In an important ‘watch this space’ addition to the proposals, Levy noted that ASIC should provide guidance on how advice providers should comply with their record-keeping obligations.)

The insurance advice industry will also breathe a collective sigh of relief, with the review leader recommending that ‘conflicted remuneration ‘payments from providers to insurance advisers continue to be allowed with the existing caps in place.

Changes to superannuation were also retained in the final recommendations, with Levy looking to enable advice payments to come out of member accounts and super fund trustees allowed to provide personal advice.

Seismic change

Levy is acutely aware of the seismic change the reforms, if adopted, will have on the industry.

The regulator, she notes, will have much to do, with a lot of existing guidance needing to be updated. She warned against the industry relying upon prescriptive guides, however.

“Note that in the past, good intentions on the part of ASIC to respond to requests from industry for greater regulatory certainty through additional guidance have in fact contributed to the overly prescriptive state of the current regulatory environment,” Levy noted. “If the same outcome is to be avoided under a new regime, industry must be willing to operate with less regulatory guidance from ASIC.”

Ever candid, the review leader saved her final word in the proposal for a quick address to advisers and licensees.

“If you have got this far I congratulate you for your persistence,” she said.

“The recommendations in this report do what the review was set up to do: recommend changes to the regulatory framework that will make quality advice more accessible and affordable for consumers.

“However, they do not require anyone to give financial advice. And so I encourage you to embrace them and to think about how you can use them to not only provide more advice to your clients, customers and members but to do so in ways that suit their needs best.”

Industry response

Advice providers, representative groups and financial services businesses were quick to offer their support for the review recommendations, with the Financial Planning Association applauding Levy for understanding that financial advisers are “professionals and should be recognised and treated as such under law”.

The Financial Services Council said the suite of recommendations laid “strong foundations” to help more Australians receive advice.

“The final report has outlined sensible reforms consistent with the detailed and evidence-based policy research conducted by the FSC and our members,” CEO Blake Briggs stated.

The nation’s largest advice provider, Insignia Financial, welcomed the review’s assessment that high quality advice is “not always comprehensive advice”, but should focus on the needs of the consumer.

“Consumers are often looking for advice on single and specific financial matters and the current regulatory framework makes it difficult for them to access this,” CEO Renato Mota stated.

While refraining from any meaningful comment thus far, the assistant treasurer encouraged stakeholders to get involved in the consultation process.

“Anyone with an interest in financial advice should read it and make their views known,” Jones stated.