The Quality of Advice Review (QAR) is a report presented to the Australian Government. It concerns the definitions, quality and provision of financial advice by Australian Financial Services Licence (AFSL) holders, proposing new understandings of the current frameworks and guidelines.
The QAR has the potential to impact a huge variety of AFSL holders, as it proposes changes to the meanings of “general advice,” “relevant provider” and more. As of 7 December 2023, the Federal Government has released a final response to the report and has made legislative updates since then. However, discussion and interpretation are ongoing.
As an AFS licensee, you’re responsible for understanding the QAR and how it may impact your financial service offerings now and in the future. You must also keep track of new legislation and take advantage of any available stakeholder comment periods.
At MIntegrity, we understand that all regulatory change can be complicated — particularly when it impacts your day-to-day services. Our deep industry expertise positions us to guide you through this learning period and adjust to shifting enforcement priorities. We’re here to help every step of the way.
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The basics of the Quality of Advice Review
The Quality of Advice Review Final Report, written by Michelle Levy and provided to the Federal Government in December 2022, seeks to “ensure Australians have access to high-quality, accessible and affordable financial advice.” The document covers a variety of recommended changes to the relevant regulatory frameworks and interpretations, particularly the Corporations Act 2001 as administered by the Australian Securities and Investments Commission (ASIC).
According to Levy, if accepted, the recommendations in the QAR would make financial advice available to those who can’t currently access it, creating opportunities for guidance based on personal circumstances. Its author also claims that the QAR would help those who can already access financial advice do so in more efficient, effective ways.
The QAR is broken into several chapters covering superannuation, personal advice, reporting requirements and more. This content was originally written as a proposal to the Federal Government; however, the Assistant Treasurer and Minister for Financial Services, The Hon Stephen Jones MP, publicly released the QAR in February 2023. As such, AFSL holders have full access to the various conclusions of the report, including:
Analysis of the current regulatory regime
Levy uses multiple sections to analyse current regulations regarding financial product advice and the definition, roles and responsibilities of an advice provider. She notes that defenders of the current regime cite its role in protecting consumers. However, she argues that the evidence doesn’t support this statement and that the framework is “an impediment to consumers getting useful guidance and good financial advice.”
Levy goes on to say that the current regime focuses on providers instead of consumers and that the QAR is intended to reframe the rules to address these issues. She clarifies that her intent is not to help any financial adviser sell their services but to better meet consumer needs.
Identification of challenges in providing financial advice
Section 1.4 of the QAR identifies numerous obstacles to providing what Levy calls “good advice.” According to the author, these include:
- Offerings: Financial institutions are “unwilling or unable to provide personal advice.”
- Accessibility: Advice is difficult and expensive to provide — and consumers apparently pay the price.
- Quality: Levy says there’s often a difference between high-quality advice and comprehensive advice.
- Conflicts: Financial product advice often includes an element of self-interest.
- Frameworks: Existing frameworks are “ complex, difficult to understand and difficult to comply with.”
Proposed recommendations and context
Perhaps most importantly, the QAR includes Levy’s proposed recommendations in their full, original language and context. This means readers can explore the potential changes that will most directly impact their role as a financial adviser or other market participant.
Levy also includes notes on general solutions. These include digital advice tools, vertical integration and a simplified regulatory approach. While not written as formal recommendations, these general solutions provide helpful context into Levy’s perspective on the future of adviser innovation.
Arguments for and against the QAR
It’s important to analyse the political environment surrounding the QAR. Compare arguments for and against the recommendations to understand what this means for your business:
What supporters say
Supporters of the QAR say that the recommendations do exactly what they’re designed to do: simplify access to safe, affordable, high-quality financial advice. They point to several “quick wins,” including reducing the necessary paperwork and increasing the focus on outcomes rather than processes.
Other benefits identified by supporters include:
- More value for clients.
- Fewer regulatory hurdles and excessive barriers.
- Reduced costs for offering and accepting advice.
- A flexible approach rather than a one-size-fits-all model.
Overall, supporters feel that the removal of red tape will help financial institutions offer advice in more practical ways, thereby serving both clients and the industry overall. This saves time and money across the board, giving experts more “breathing room” to focus on each client’s unique financial situation.
What critics say
It’s equally important to review what opponents are saying, why they hold these perspectives and how this could impact future legislation. For example, some QAR readers have identified issues with Levy’s recommendations:
- The proposed Good Advice Duty (Recommendation 4) presents problems in identifying and documenting “good advice.”
- Eliminating the statement of advice (SoA) required for every retail client (Recommendation 9) could complicate record-keeping and compliance demonstration responsibilities.
- Terms like “non-relevant provider” are not explicitly defined.
- Some recommendations create confusion in specific cases, such as a super fund providing personal advice to members.
- The QAR introduces new considerations into an environment where some market participants feel regulations are already too complex, restrictive or costly.
On top of this, critics note that the QAR could cause more of the problems it supposedly eliminates, adding risks for consumers while creating benefits for the larger financial institutions already involved in numerous scandals. A significant concern is that bigger businesses will be able to hire a large number of unqualified employees to offer free financial advice without any of the consumer protection rules that apply to more formalised contexts; this could undercut other industry players and lead to an oversaturation of low-quality advice.
The implications of the QAR for AFSL holders
As an AFSL holder, it’s important to understand how the QAR could impact your business. Although the resulting legislation hasn’t been finalised as of May 2024, this is a perfect opportunity to prepare for potential changes and make choices that promote agility, flexibility and adaptability.
Here’s how to leverage this document and relevant context:
#1: Do your research
Remember that the report was originally written for a government audience, not AFSL holders. As such, you’ll need to do additional research to understand what comes next and how each element may impact you. Start by looking at the Final Government Response, which builds on a previous announcement addressing 14 of the 22 QAR recommendations.
#2: Pay attention to key definitions
Much of the content in the QAR relies on Levy’s definition of key terms:
- Financial product advice: A recommendation or statement of opinion intended to influence financial product decisions.
- Personal advice: Financial product advice (currently referred to as an SoA) given by a provider that has considered the consumer’s circumstances.
- General advice: Any other kind of financial product advice.
- Good advice: Advice that is fit for purpose based on the client’s request or provider’s discernment; the client’s likely circumstances; and the scope, content and nature of the advice itself.
- Relevant provider: An individual providing personal advice after the client pays a fee or the product issuer pays a commission.
For more context, find these terms and their full definitions throughout the QAR — and pay close attention to how and when the author uses them.
#3: Make connections to existing responsibilities
The QAR is just one part of a much larger regulatory compliance puzzle. As you analyse how potential changes could impact your business, remember to connect these shifts to existing responsibilities, as you’ll need comprehensive compliance measures to keep all your policies and procedures from falling through the gaps.
#4: Predict and prepare for challenges
Remember that Levy’s recommendations are built to benefit consumers, not necessarily AFSL holders. This means you’ll need to anticipate challenges in forthcoming legislation, obligations and regulatory requirements.
Consider how each recommendation might impact your business if accepted in its exact language. While this may not be the case once legislation is finalised, this kind of consideration helps you prepare for extremes and optimise regulatory change management. It also helps you choose and leverage the right tools — like RegsWeb, regulatory compliance management software that helps you keep up with shifts and how they impact your business.
Key takeaways from the Quality of Advice Review
As you follow the above steps, you’ll need to focus on particular sections of the QAR. These include:
Recommendations
All 22 recommendations are outlined starting on page 5 of the report. Levy says these recommendations are intended to complement and build upon one another; however, keep in mind that they may not become part of financial services law in their current state.
In summary, the QAR recommendations seek to establish a framework for “good advice” by:
- Clarifying who can offer different kinds (for example, superannuation advice).
- Replacing or updating requirements like the SoA and the Design and Distribution Obligations with new guidance.
- Removing certain exceptions in the existing regulatory regime.
- Creating new expectations around fees, benefits, consent requirements and more.
How to use this section: Find the exact language of each recommendation and how it could change the landscape for your business.
Current Regulatory Regime
Chapter 2 covers the current state of the regulatory regime, including the Financial Services Reform Act, AFS licensing, international comparisons, key reforms and responsibility requirements. This section is vital for AFSL holders because it helps you understand how you and your business play into the proposed regulations and Levy’s presumptions.
How to use this section: Learn more about regulatory frameworks and where they supposedly struggle, including how similar issues are handled abroad.
Issues Identified in Consultations
Chapter 3 takes a closer look at the concerns giving rise to all 22 QAR recommendations. It breaks down five major themes, as identified through Levy’s research. These state that the regulatory regime is:
- Too complex.
- Focused on processes, not outcomes.
- A barrier to more accessible and affordable advice.
- A significant contributor to the cost of advice.
- A risk to the sustainability of the advice industry.
Pay attention to where these perspectives come from, who supports them, how Levy contextualises them and how they connect to your role as a financial services provider.
How to use this section: Get valuable information about industry-wide issues that may become the foundation of enforcement priorities or regulatory requirements in the coming years.
Transition and Implementation
Chapter 11 covers Levy’s intended implementation plan. Originally, she expected the recommendations to be viewed as a package and noted that they “rely on each other.”
However, the Federal Government’s initial response shows that the actual approach may not align with Levy’s intentions. Instead, the announcement outlines three “streams” comprising its Delivering Better Financial Outcomes package:
- Removing red tape.
- Expanding access to retirement income advice.
- Exploring new advice channels.
In November 2023, the Government released legislation to implement half of the 22 recommendations in line with the first stream. Further legislation is expected to be passed to Parliament by the end of 2024.
How to use this section: Learn how Levy expected her recommendations to work together and impact the industry.
Tips and recommendations for using the QAR
As the political environment surrounding the QAR continues to shift, it’s important to understand how this impacts your company — and, perhaps most importantly, what you should do about it. Here are a few tips from the MIntegrity team for navigating change and maintaining compliance:
- Do your research. Go beyond official government documents to get the full perspective on the QAR and its supporters, critics and impacts. Consider each point from multiple angles, including your clients’.
- Stay up-to-date. Pay attention to official announcements from the government and relevant regulators. Ensure you know how these will impact your policies and procedures.
- Have the right tools in place as soon as possible. Effective software can help you identify and address compliance issues before they even become issues. Your challenge, then, is to choose the right software ahead of time so you’re prepared for changes related to the QAR and other shifts.
- Review regularly. Review your documents to ensure they’re practical, user-friendly, fit for purpose and actually used in your day-to-day operations. You should also create a schedule for compliance and policy reviews.
- Ask questions. If you don’t understand a regulation or requirement — whether current, forthcoming or under consideration — reach out to expert consultants for advice.
Need help with the Quality of Advice Review implementation?
The QAR and resulting legislation could have a significant impact on your company’s policies, procedures and regulatory obligations. To ensure you’re checking all the right boxes, it’s important to have two solutions at your fingertips:
Structure
Ensure your workflows are built with compliance in mind. Software like a live regulatory library connects legal documents to internal resources, helping you identify regulatory change and how it impacts your day-to-day operations.
Support
Don’t try to tackle a fast-changing environment alone. Reach out for expert help with policy management, compliance frameworks, independent reviews, regulatory documentation and more. You’ll have the support you need to navigate QAR shifts and other industry fluctuations without breaking stride.
To learn more about how the QAR might impact you and what your next steps should be, contact us today.
