Just over two years since submitting the Quality of Advice Review final report, the writer of the recommendations is concerned the industry will be left working around a lacklustre attempt at advice reform.
The admission came as Allens partner Michelle Levy reflected on her review at the Professional Planner Advice Policy Summit in a rare intervention from the reviewer into the policy conversation since the conclusion of her report.
“If nothing further happens to the change of regulation of financial advice, I think that all of you will just work around the existing law,” Levy said.
“That’s a pity, because there are impediments, but I don’t think it’s fatal to what still might happen.”
After doing some public campaigning for the review following the submission of her completed report to government in December 2022, Levy has since gone back to her previous life and has not been closely following the legislative movements.
However, she has seen enough to warrant concerns the government’s attempt at reform may not be as ambitious as her review sought to deliver.
“I’m actually a bit confused about what recommendations have been accepted and what have not,” Levy said.
“I think the government didn’t reject all of my recommendations but three years later what we have is some very modest changes to law and not much has happened in the way of accessibility and improving accessibility and affordability of advice.
“I am just a bystander and I look at it and I’m really worried about a quasi-adviser role. I worry that we’re going to end up with more complexity and more regulation, not less.”
While much of the QAR was welcomed by the industry – particularly recommendations to scrap Statements of Advice and streamlining the obligations for fee consent renewal – much of the contention with Levy’s review was the return of vertical integration and the unwinding of the Best Interests Duty.
Levy said she maintains the view that vertical integration is a necessary part of financial services.
“You don’t buy your bank account off a shelf; it doesn’t just appear. It comes with some kind of recommendation or document that tells you this is a good product,” Levy said.
“In my perfect world, it should not just come with ‘this is a good product’ it should come with the person who wants you to buy it – selling, maybe – having to say this is a good product for you.”
Levy said the Design and Distributions Obligations – which governs how product manufacturers design and distribute their products to retail investors – partly function in this respect, but it doesn’t go far enough since it covers the needs of a target market butnot how it might fit into individual circumstances.
Despite Levy’s concession that vertical integration is a necessary part of financial services, she also noted the safeguards that are now in place didn’t exist in the previous environment that led to the Hayne royal commission.
“The recommendations and the loosening of the regulation I had recommended is not happening in a vacuum,” Levy said.
“They are happening with strong consumer protection laws and a very active regulator or regulators.”
Changes to the education standard was outside of the scope of the review, but in her comments, Levy praised the announcement made by Minister Jones at the start of the summit which would see the degree pathway expanded.
Levy had noted in the review’s final report the restrictive education standard had frequently been raised by industry participants as encumbering or deterring new entrants.
“Having a degree – it shouldn’t matter which discipline – and then you can do the occupational parts of that training later,” Levy told the summit.
“I’m not sure what else you need. You need a degree, you need a professional association, you’ve got a duty to act in the best interests of the client. I don’t know what else there is.”
Foundations for consensus
The summit found consensus had been reached over the Tranche 2 proposals, potentially setting up bipartisan support for draft legislation, and Levy noted the willingness to compromise had improved over time.
“It would nice if people could compromise their own position – and I don’t think it’s much – to say there is room for everybody here and it’s in the interests of consumers that the whole ecosystem is working really well,” Levy said.
Levy said that during her review process most of the disagreements within the industry revolved around “language”.
“It’s very unfortunate, it’s around the key term of financial advice,” Levy said.
“It’s really, really important that we all agree on what is meant by that term and what is being used.”
Levy said there’s a general way the term is used which she said is about “anything financial” like debt management, opening a bank account, taking out an insurance policy or retirement income advice.
“It’s really, really broad – I use the word, I shouldn’t have – when we think about what it means in the Corporations Act which is what the review as about, it’s actually very specific,” Levy said.
“It’s broader than many of us would think about as advice because it is about a product recommendation. If what is being regulated is financial product advice, then we do have to grapple with the professional recommendation and I don’t think it can be. More people than there ever can be financial advisers need to be giving the full range of advice.”
One of the more contentious parts of Levy’s recommendations – and later with the minister’s second adviser tier proposal – was the charging mechanism allowed.
Under Recommendation 6 in the final report, Levy recommended restrictions on collective charging of fees should be removed, giving more flexibility on how to charge for advice-like services provided by the fund.
Levy told the summit “only a financial adviser gets to call themselves a financial adviser” and those who weren’t advisers shouldn’t be able to charge a fee for advice.
“It was to acknowledge the special place and value of the professional financial adviser,” Levy said.
Levy said advisers “deserve to be paid well” and while she wanted to increase access and affordability, she believed professional advisers should be well remunerated.
“It’s not about driving down the price – that was the other thing I thought – we shouldn’t be looking at trying to drive down the price of the advice given by a professional financial adviser,” Levy said.
“In my view, that is not the way to solve the advice problem.”
‘Bit of a lefty’
Reflecting on the role of her review, Levy said while she became empathetic to the plight of advisers her main concern was the consumer.
“Financial advisers have real concerns, I’m absolutely sympathetic and the more I listened to you the more sympathetic I was and the more I understand the value of what you do,” Levy said.
“But there are millions of others who will never have access to a professional financial adviser so my real concern was on that accessibility and affordability part which I thought the minister should be sympathetic too.”
Levy had received criticism for her appointment given her clients had been from the big four banks, which led to the perception she was being used by the Coalition as a backdoor to get the banks into advice.
But the reviewer confided she had a different concern and that her political leanings would make her unappealing to Coalition leadership.
“I was very shocked to be appointed to the review by the Coalition government because I’m a bit of a Lefty,” Levy said.
“I’m in [Prime Minister] Anthony Albanese’s electorate, I’m in Grayndler. I thought they’re going to find out.”
Asked whether Levy’s vote could be swayed at the upcoming election given the Coalition’s backing of implementing her review in full, the reviewer noted the challenges a Liberal candidate would have winning her electorate.
“I don’t know if they’re running a candidate,” Levy said. In the 2022 election, the Liberal party candidate finished third place, receiving only 16 per cent of the vote in the division of Grayndler.
Asked if, hypothetically, she could choose only one recommendation to be enacted into law, Levy picked her marquee recommendation that would create a principals-based regulatory regime.
“I flip flopped, there are a lot; I’ve gone with good advice,” Levy said.
“I don’t know if that’s what is going to be in the regulations, but good advice was about advice that was fit for purpose, it was about the outcome.”
Levy is right in recognising that vertical integration is a necessary part of financial services, but the way she approached “solving” the issue was deeply flawed. Instead of addressing the underlying inefficiencies, she proposed creating a “new class of adviser”—one that could be funded through trail commissions (collective charging) while sidestepping the rigorous educational standards imposed on professional advisers. In reality, this amounts to nothing more than giving industry super funds the green light to employ a tied sales force to push their products. That’s the essence of her proposal.
These people are paid handsomely to deliver real solutions, so I’m less forgiving when their recommendations conveniently serve entrenched interests. Levy either knew or should have known exactly what she was doing when she tried to hand industry super this gift, under the guise of “making advice affordable.”
That said, she is correct in supporting the relaxation of the new educational pathway requirements—this is a much-needed fix, and she deserves credit for backing it.
However, where she has consistently missed the mark is in her failure to grasp the true value of the best interests duty. Her recommendation to dismantle it will do far more harm than good—something the FAAA also seems unable to comprehend.
The so-called “advice problem” and “affordability problem” won’t be solved by more top-down intervention. They will be solved when the government steps back and allows market-driven solutions to emerge. The real obstacle to affordability isn’t a lack of government involvement—it’s excessive regulation and the interventionist mindset of safety-first ideologues.
Good regulation minimises unnecessary commercial interference. But as Levy herself admits, she’s “a bit of a lefty”—and with that comes an inherent impulse to interfere, control, and “protect,” even when doing so only exacerbates the problem.