Digital solutions combined with “more effective” regulation can bolster the affordability and accessibility of financial advice without watering down its quality according to Michelle Levy, the Allens partner given the job of leading this year’s Quality of Advice Review.
Treasury released an issues paper linked to the review’s consultation process late Friday afternoon, which Levy introduced by reinforcing that the exercise would focus on “enhancing the regulatory framework for financial advice”.
Putting advice within reach of more Australians does not mean the quality of the advice delivered should be compromised, the paper argues.
“It is often suggested that there may be trade-offs between quality on one hand and accessibility and affordability on the other hand. This is not inherently the case.”
The primary tool to achieve a balance between quality and access, it states, will be a simpler regulatory system.
“More effective regulation may reduce the costs of compliance without prejudicing outcomes for consumers and, where there might be trade-offs between quality, accessibility and affordability, the review will seek to determine whether the framework is achieving an appropriate balance between these elements.”
A core element of the uplift will be a move to swap out some of the prescriptive legislation that has been bolted onto the Corporations Act over the years, and replace it with principles-based regulation.
“The review will consider whether simpler principles-based regulation can replace any of the current detailed requirements to allow the law to better address fundamental harms and reduce the cost of compliance,” the paper states, noting that the review’s work will dovetail with that of the Australian Law Reform Commission, which is currently examining the regulatory architecture housing the advice ecosystem.
(It’s worth noting the distinction between the two reviews; while the ALRC will make recommendations on the structure of advice regulation, it’s mandate doesn’t include amendments to the law itself. The Quality of Advice Review, however, is likely to propose legislative changes.)
In addition, the issues paper makes it clear that increasing access to advice will mean addressing “changing” consumer preferences for advice delivery methods, including the use of more piece-by-piece (or episodic) advice and greater use of digital advice.
“Fintech presents the opportunity to automate processes, improve information, increase consumer choice, and eliminate constraints caused by distance,” the paper states, noting that consumers express a “strong preference for using digital financial products and services”.
The real place of technology in advice remains uncertain, however. Despite the stated preferences, only one per cent of Australians have used digital advice (as per ASIC’s 2019 report into consumer thinking), while 69 per cent of advisers do not provide digital advice solutions or intend to in the future.
“Financial advisers said the key impediments were a lack of demand, consumer preference, and compliance concerns associated with digital advice,” the paper explains, referring to ASIC’s research.
Product focus fears
The paper’s reassurance that the review won’t seek to dilute advice quality or professionalism comes after Levy hosted a webinar in November where Allens senior regulatory counsel Michael Mathieson, said the review would indeed focus on access 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.
Less than four months later, with Levy named to lead Treasury’s review, the team is adamant this focus on access won’t be at the expense of quality.