On 11 March 2022, the government released their final terms of reference for the upcoming Quality of Advice Review, with the report to be provided by 16 December 2022.
The review is being conducted in response to Recommendation 2.3, 2.5, and 2.6 of the Haynes Royal Commission and will also consider fee disclosure and consent requirements, and annual renewal for ongoing fee arrangements (Recommendation 2.1).
The final terms of reference make clear that the review will not include certain matters such as the definition of a ‘retail client’, ‘wholesale client’ and ‘sophisticated investor’.
Recommendation 2.1, 2.3, 2.5 & 2.6
|Recommends that ongoing fee arrangements be renewed annually by the client, and that advisers record in writing the services that the client will be entitled to received and the total fees that are to be charged. The recommendation proposes that the law be amended so that ongoing fee arrangements may neither permit nor require payment of fees from a client except on the client express written authority to the entity that conducts their account given at (or immediately after) the latest renewal.
|Recommends that the review into the effectiveness of existing measures aimed at improving the quality of advice be competed ‘preferable by 30 June 2022, but no later than 31 December 2022’. The review is to include consideration of whether the ‘safe harbour’ provision (s961B(2) of the Corporations Act) should be retained.
|Recommends that the planned ASIC review of conflicted remunerations pertaining to life risk insurance products and the operation of ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 should consider whether ‘there is justification for retaining those commissions’ and that the cap ‘should ultimately be reduced to zero’ if they are to be retained. This review will cover the review of life insurance commissions that has already been progressed by ASIC.
|Recommends that the review referred to in Recommendation 2.3, also include consideration into whether ‘each remaining exemption to the ban on conflicted remuneration remains justified, including: the exemptions for general insurance products and consumer credit insurance products, and the exemptions for non-monetary benefits set out in s963C of the Corporations Act.
Intent of the review
The government had identified that the key aim of the review is to ensure access to affordable, high quality financial advice. An important aspect of achieving this objective is to streamline regulatory requirements and lessen the existing costs/compliance burdens on advisers. At a high level, the review will look at:
- The potential to reduce cost and remove duplication by streamlining and simplifying regulatory compliance obligations
- The potential to replace rules-based regulation with principles-based regulation
- Better meeting consumer needs by simplifying documentation and disclosure requirements
- Whether elements of the regulatory framework have manifested undesirable, unintended consequences, and ways to mitigate or reduce those consequences.
Scope of the review
The review will examine the legislative framework for financial advice, including the following elements:
- Whether concepts such as financial product advice, general advice, and personal advice could be more clearly demarcated or simplified, and whether these terms are understood by consumers.
- The role and scope of advice termed as scaled, intra-fund or limited in scope.
- Whether the ‘safe harbour’ provision (s961B(2) of the Corporations Act) should be repealed, or if there is sufficient justification to preserve it.
- Financial advice documentation and disclosure requirements – including SoA’s
- Fee disclosure and consent requirements – including reforms to the annual renewal of ongoing fee arrangements.
- The impact of life insurance remuneration reforms, particularly on the level of insurance coverage
- The existing exemptions to the ban on conflicted remunerations for life and general insurance
- The effectiveness of consent arrangements for sophisticated investors and wholesale clients for the purposes of financial advice
- Actions taken by ASIC regarding regulatory guidance and class orders
- The role of professional associations and financial services entities.
The Quality of Advice Review is designed to consider whether measures and obligation that have been implemented by government, regulators, and financial services entities:
- have improved the quality of financial advice
- require further reforms and changes and/or
- have left any measures/obligations redundant or requiring streamlining
It is also designed to consider how to ensure the regulatory environment supports Australians getting access to affordable financial advice.
For further information
GRC Essentials can help
This is an overview of the Quality of Advice recommendations; in future instalments we will look at these recommendations in more detail and examine how they may impact your business. Please don’t hesitate to contact us if you have any questions or if we can help you with any of your compliance matters.
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