The Treasury has released Draft Terms of Reference for its 2022 Quality of Advice Review.
The review is intended to consider “…how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors.”
According to the draft terms of reference document, the review will investigate in particular:
- Opportunities to streamline and simplify regulatory compliance obligations to reduce cost and remove duplication, recognising that the costs of compliance by businesses are ultimately borne by consumers and serve as an impediment to consumers’ access to quality advice
- Where principles-based regulation could replace rules-based regulation to allow the law to better address fundamental harms and reduce the cost of compliance
- How to improve the clarity and availability of documents and disclosures so that consumers are presented with clear and concise information without unnecessary complexity
- Whether parts of the regulatory framework have in practice created undesirable unintended consequences and how those consequences might be mitigated or reduced.
Legislative framework
The terms of reference document also notes the Quality of Financial Advice Review will include examination of the legislative framework for financial advice, including:
- The life insurance remuneration reforms, and the impact of the reforms on the levels of insurance coverage
- The remaining exemptions to the ban on conflicted remuneration in life and general insurance
- Key concepts such as ‘financial product advice’, ‘general advice’, ‘personal advice’, as well how they are used, how they are interpreted by consumers, and whether they could be simplified or more clearly demarcated. It should also consider the role and bounds of advice that is considered scaled, intra-fund or limited in scope
- Consideration of the safe harbour provision for the best interests duty in line with Commissioner Hayne’s recommendation that “unless there is a clear justification for retaining that provision, it should be repealed”
- Financial advice disclosure requirements including statements of advice
- Recent reforms to introduce annual renewal for ongoing fee arrangements
- The role of financial services entities including professional associations
The draft document also notes the review should have regard to:
- Structural changes and professionalisation of the sector
- Best practice developments internationally
- The level of demand for advice and the needs and preferences of consumers
…It will also look at opportunities to reduce compliance costs on industry, while maintaining adequate consumer safeguards…
It will also look at opportunities to reduce compliance costs on industry, while maintaining adequate consumer safeguards and at enabling innovation and the development of technological solutions including the use of regulatory technology and digital advice.
The Review will be undertaken by an independent reviewer with the report due to be provided to the Government by 16 December 2022.
AFA: Take a Level of Confidence
Meanwhile the AFA says in a newsletter to members that the industry “…can take a level of confidence from these draft Terms of Reference that the Quality of Advice Review will confront the key issues, and that the Government is seemingly open to change on many fronts.”
It says this is “…a particularly important review as it will not only address some of the remaining issues from the Hayne Royal Commission, but also assess the effectiveness of recent reforms and address accessibility and affordability of financial advice.”
The association says the Terms of Reference are “…very broad and include a number of key areas that are central to the success of the financial advice profession.”
Click here to access a copy of the Review of the Quality of Financial Advice Draft Terms of Reference. Consultation on the draft closes on 4 February 2022.
