Adrian Kwa

An alternative to removing the safe harbour steps could be to align it to the advice process while resolving the Code of Ethics and conflicts in the law according to Strategie3 chief executive Adrian Kwa.

In a webcast hosted by IMAP, Kwa noted the removal of the steps is one of the key hot topics for the Quality of Advice Review and a recommendation of the Hayne royal commission due to the ethics code largely making it redundant.

“There’s a view going on in the industry that safe harbour is the reason why the compliance overload is happening at the moment. There’s a view safe harbour was the reason why the advice steps are so prescriptive… and I’ve got a different view.”

Kwa was formerly Shadforth national head of advice from 2019 to 2022 and now leads an independent management consulting firm.

He said while the first six steps are comparatively reasonable (i.e. identify the needs of the clients, make reasonable enquiries to obtain complete and accurate information etc.), the final step is much more open – take any other step that would reasonably be regarded as being in the best interests of the client.

This has created what Kwa described as a “catch-all provision”.

“There are some problems with the current best interests duty as it is,” he explained. “My recommendation is not to dump it but to effectively maintain it but just make it more aligned to what an adviser does.”

New financial services minister Stephen Jones has expressed reservation with removing the provisions despite industry lobbying.

“The safe harbour rules are not the problem; they are there to protect advisers,” he said in a webcast hosted by the Financial Planning Association during the election campaign. “That’s their purpose – to protect advisers, not to direct advisers and spawn mountains of reforms in the delivery of advice.”

Optimism for the review

Kwa’s recommendation has been included as part of his submission for the advice review which has a 3 June deadline for submissions.

“I honestly think this review is our chance to be heard, with Treasury really seeking to understand what 20 years of over-regulation has done to the financial advice profession and to access to advice for consumers.”

Kwa said Treasury understands the need to streamline because the costs in advice have increased exponentially.

“Rules have overtaken the outcome of advice. We need to be more principles-based to allow financial advisers the ability to exercise professional judgment.”