The Review, led by Michelle Levy of Treasury, considered whether changes should be made to the regulatory framework applying to financial advice to improve the accessibility and affordability to consumers. The answer so far is a resounding ‘yes’. Lawyer Jordan Windress explains.
The most significant changes for fund managers and financial advisers are the proposed changes to the definitions of advice. The Review suggests amending the definition of ‘personal advice’ to apply whenever a financial service provider gives a recommendation or opinion to a client about a financial product when the provider has knowledge of the client’s objectives, needs, or any relevant aspect of the client’s financial position.
Under the proposed changes, personal advice could be provided irrespective of whether the provider has actually contemplated the client’s objectives. The end result is increased regulation of advice for providers. However, it is argued providers will be more likely to consider their advice per client and result in better advice emanating from the industry.
The Review also aims to remove the concept of ‘general advice’, although general advice will still be the subject of consumer protections. Treasury says general advice warnings are commonly misused within the industry and result in little value to the consumer. One consequence is that a person currently providing general advice will no longer require an AFS licence, as long as they do not provide another financial service requiring an AFS license. Significantly, certain opinions and recommendations currently considered general advice would fall within the ambit of personal advice under the proposed changes. Advisers should note they would still be required to comply with their obligations under consumer law, as well as adhering to their restrictions and obligations under the conflicted remuneration and design and distribution frameworks.
Another proposed alteration is replacing the existing ‘best interests duty’ with the obligation to provide ‘good advice’, resulting in the best interests obligations under Chapter 7 of the Act being repealed. Under the changes, advisers would be obliged to provide advice reasonably likely to benefit a client having regard to the individual circumstances within the adviser’s knowledge.
In another industry change, personal advice providers will be required to obtain the written consent of their clients prior to receiving fees from financial products with continuous fee arrangements.
The proposed changes received further market consultation which closed on 23 September 2022. The Review will provide its final report to the federal government by 16 December 2022.