What went wrong with the QAR

The initial idea was sound: take a good, hard look at how financial advice is delivered to consumers and come up with some ideas on how to make it more accessible and more affordable.

But right off the bat there were a couple of issues with the underlying premise of the Quality of Advice Review, and these have been compounded by some puzzling recent decisions.

First, setting up a review to make advice more accessible and more affordable presupposes that advice is inaccessible and unaffordable to start with.

Second, a review focused on how to make advice more accessible and more affordable should never have had the term “quality” in its name.

Between the publication of the final report and the tabling of enabling legislation, there have been a couple of missteps.

For example, the idea of creating a “qualified adviser” designation was curious, especially when such individuals would actually be less qualified than existing advisers, despite assurances it will be changed.

More important than the nutty nomenclature, it upset advisers going through the education wringer to learn that someone who hadn’t done nearly as much work as they had and hadn’t made nearly as great a commitment to professionalism as they could nevertheless call themselves “qualified”.

The only other individuals who don’t have to meet the same education standards as everyone else are those advisers with 10 years or more experience. That’s a topic for another occasion.

Then on the issue of allowing advice fees to be deducted from superannuation fund members’ accounts, a bill was tabled that appeared to impose such an admin and compliance burden on funds that some industry players called into question whether funds will choose to simply not provide advice to members at all.

The truly puzzling aspect of this was that the shortcomings of an exposure draft bill had been clearly and loudly pointed out, and the government chose to either ignore or reject submissions that could have quite simply fixed the problem.

Reforming regulation is a tough gig at the best of times. When it comes to financial advice it’s particularly fraught because the legislation that governs advice isn’t fit for purpose. It’s all about financial product advice, when over the past 10 years or so financial advice has mostly successfully reinvented itself as a professional service.

Add to that the fact that the Corporations Act is a mess just generally. The Australian Law Reform Commission neatly assessed the situation when it described the act as “porridge” and then made no fewer than 58 recommendations on how to restructure it.

But even the ALRC was fighting with one hand tied behind its back, because as its report noted, “significantly, the terms of reference did not direct the ALRC to consider whether the substantive law by which corporations and financial services are regulated requires reform”.

“Rather, the focus of the inquiry has been the extent to which reform of the existing regulatory framework can be undertaken within the context of existing policy settings,” the commission said.

In other words, the ALRC was asked to report back on what the best way is to apply lipstick to this particular pig.

In its report, the ALRC said the existing legislative framework is “unnecessarily complex, and complexity only continues to accrue”.

“Parts of the legislative framework have variously been described as ‘porridge’, ‘obscure and convoluted’, ‘shrouded in obfuscation’, and likened to a ‘maze’,” it said.

This was the context that Michelle Levy found herself in when she was appointed to lead the QAR. How financial advice can be made genuinely accessible and affordable and at the same time still meet high levels of quality is really a tough question. That question becomes further challenging if the foundations of the law on which it’s built are wobbly and in apparently fairly urgent need of renovation – if not knocking down and rebuilding.

In any case, the QAR went ahead, we had a change of government, the final report was delivered to a minister who may or may not have been enamoured of the review to begin with, and the recommendations of the review are now making their way into legislation now transmogrified into the “Delivering Better Financial Outcomes” program. The term “quality” seems to have been taken out the back and shot.

Improving the accessibility and affordability of advice is a fine objective, but diluting standards isn’t an acceptable way of getting there. It doesn’t help when the legislation designed to do one thing (improve affordability, accessibility) might have the opposite effect (such as dissuading some super funds from providing advice altogether).

The fundamental issue – if we can stand another porcine metaphor – is that the QAR, the ALRC and the government are all trying to make silk purses when the material they’re using is a sow’s ear. The process of reforming advice regulation can never be perfect, it will inevitably involve compromises, and it might give rise to some odd ideas along the way.

But as long as the government is prepared to listen to stakeholders and to make course corrections where necessary, we’ve got a chance of coming out of the process with something better than we went in with. Let’s see who is willing to do that in the next few weeks.