The Government’s Quality of Advice Review is meant to ensure Australians have access to high quality, affordable financial advice. But the recent release of Michelle Levy’s consultation paper has generated significant concern in the independent advisory industry, and for good reason.

Levy’s proposals suggest easing the compliance burden on advisers to increase financial accessibility justifies back-pedalling on regulations implemented to protect consumers over the last 20 years.

The Review’s ‘good advice’ clause looks to do away with the ‘best interests duty’ test, along with other regulations aligning adviser and client incentives.

New definitions dilute service standards

Under Levy’s proposal, advisers will only be required to provide advice that is “reasonably likely to benefit the client”.

The revamp will see general advice no longer regulated as a financial service, meaning gone are the days of general advice warnings when advertising financial products, presenting webinars or issuing newsletters.

‘Personal advice’ has been redefined to cover any advice provided with knowledge of a person’s financial situation or objectives and replaced the ambiguity around advice that is ‘reasonably assumed to’ consider the clients personal situation.

The broadening of the definition ‘personal advice’ is likely to encourage superannuation funds to now offer financial advice, having been hindered from doing so by the prior legislation. In addition to opening the floodgates for super funds to provide financial advice, Levy’s proposals would also allow them to charge fees at their discretion – including fees taken from super balances.

Unsatisfactory protection to those seeking financial advice

If quality advice is diluted by banks and superannuation funds under Levy’s recommendations, there is greater potential for conflicts of interest to arise – like superannuation funds promoting in-house investments – so a ‘buyer-beware’ mentality is of utmost importance.

Government regulation of intra-fund and bank advisers also raises alarms. Monitoring and oversight are essential if services are offered intra-fund to prevent unlicensed staff (or salespersons) in call-centres providing financial advice.

Holding an unqualified ‘adviser’ accountable with financial advisory laws will no-doubt prove difficult.

What should happen?

A return to dodgy practises of the past where clients were seen by some unscrupulous advisers as easy and unsuspecting prey could be the result of over-relaxation of the rules.

Regulating advice is a cornerstone of ensuring the industry being on notice when it comes to advising in the best interests of clients.

Consumers must have the appropriate framework to determine if the ‘good advice’ is appropriate so that consumer protection remains a primary concern under this regulatory relaxation.