The upcoming Quality of Advice Review will focus on the accessibility and affordability issues highlighted by ASIC in its recent consultation rather than the actual quality of advice according to representatives from leading global law firm Allens.
Since Hayne’s 2019 recommendation for an advice quality review in 2022, which was spurred by the discovery of mass problems in the advice delivery mechanisms of institutional advice providers, there has been a sharp turn in the advice industry narrative.
In the intervening three years the retreat of the banks, tough new ethics and education standards and the implentation of Hayne’s reforms have combined to dramatically lift advice standards. In noting the proportion of financial services complaints related to advice had dropped to 1.8 per cent, AFCA gave a solid thumbs up to the industry’s recent progress.
While the quality of advice issue has largely ameliorated, the quantum of advisers has declined 30 per cent from its 2018 high and the cost to serve has risen dramatically. Access to advice has become the cause de jour.
The result, says Allens senior regulatory counsel Michael Mathieson, is that while Hayne’s review is going ahead as planned, the focus will be on affordability rather than quality.
“I think what Commissioner Hayne had in mind and what many people, including possibly Treasury, today have in mind are quite different,” Mathieson said on a recent webinar.
Mathieson pointed to ASIC’s recent work as an indicator of where Treasury’s current interest lies.
Referring to the regulator’s 2020 Consultation Paper 332 Promoting access to affordable advice for consumers, Mathieson observed: “It says nothing about the quality of advice, it’s all about affordability and removing barriers.”
ASIC has already stated that it would not release the broader findings from CP332 to the public, and instead feed it directly into Treasury to be used as a resource in the review.
Mathieson also noted that the financial services minister, Jane Hume, has been “very clear” that the review will be “as much, if not moreso” about affordability rather than the quality of advice.
The new going concern
A review focussed on increasing advice accessability, as predicted, would be likely to address the issue from a number of angles, most of which were touched on by ASIC in its consultation.
The most frequently mooted fix regarding accessibility has been a reset of the compliance requirements in advice. To that end, the regulator has signalled that broader use of Records of Advice is on the agenda.
“It’s obvious the SOA is on the chopping block,” Mathieson said, noting that this is a very different primary objective to that of Hayne, who wanted to examine whether the safe harbour provisions were still necessary. “That’s not what the commissioner had in mind,” he added.
Improving the channels of talent coming through the advice industry to redress the supply issue could also be a focus of the review, as could a push to get the loss-leading upfront costs of advice deemed tax deductable.
One thing seems clear, though. The nature of advice being given has been replaced as the going concern by the provision of it.
Mathieson, musing on the proliferation of the term ‘unmet advice needs’ in industry commentary this year, posed the question: how deeply did Hayne delve into the issue at the commission?
“I did a check before this presentation and that term does not appear in the final report,” he said.
The discussions about quality of advice and affordability of attaining advice being seen as something separate, is a bit of an insult to the thousands of Advisers who for decades have provided both, though for reasons out of their control, were pushed down a path that led us to a much worse predicament for all Australians.
Talk to 99 percent of Australians who have received a Statement of Advice that followed the legalize wording model with endless sentences that only a Lawyer can understand or even be interested in and the overwhelming response, is that I have no idea what all this means and why can’t it be in plain English?
Quality and affordability means NIL value if a client refuses to read the documentation, or even if they did and at the end, is totally confused, then what on earth are we trying to achieve?
Quality and Affordability are intertwined and must be balanced with the most important part of the equation, which is a reasoned expectation that the client understands the Advice document and is happy to read it.
The Government and the Regulators are starting to realise that over zealous and complicated Regulation has had the opposite result to their objectives and there is an urgent need for change.
The balancing act is to make sure any change achieves what is a basic right for all Australians, which is Advice that is understandable and allows them to be part of the discussion and not to feel an adjunct to it.