Unpacking what the Federal Government’s final response to QoA Review means for brokers
The government has provided their final response to the Quality of Advice Review with further details released as part of the Delivering Better Financial Outcomes package of reforms.
Action has already been taken on a number of recommendations with draft legislation already provided for consultation on a number of reforms including introducing flexibility in the way disclosure documents such as FSG’s are provided to clients as well as commission disclosure and consent obligations for general insurance, life insurance, and consumer credit insurance commissions.
The remaining reforms will be implemented in two streams, with the next stream of work to be released focusing on the changes to the safe harbour provisions and statements of advice.
The government's response to each of the recommendations is summarised below:
Recommendation 1: The definition of personal advice should be expanded so that all advice will be considered personal advice if it is given to a client in a personal interaction or personalised communication by a provider who has information about the client’s financial situation, objectives or needs.
Government Response: The government has decided not to proceed with this recommendation.
Impact for members: None.
Recommendation 2: The requirement for a general advice warning to accompany general advice should be removed.
Government Response: The government has decided not to proceed with this recommendation.
Impact for members: None.
Recommendation 3: Amend the Corporations Act to provide that personal advice must be provided by a relevant provider where:
a) the provider is an individual; and
b) either: i) the client pays a fee for the advice; or
ii) the issuer of the product pays a commission for the sale of the product to which the personal advice relates. In all other cases, personal advice can be provided by a person who is not a relevant provider.
Government Response: The Government has proposed to introduce a new class of financial advice provider who will be able to provide “simple personal advice”. This adviser will be subject to the best interest duty and minimum competency standards. Unlike insurance brokers, this new type of adviser will not be able to charge a fee or receive a commission in exchange for the advice they provide.
Impact for members: This recommendation will make it easier for product issuers to provide “simple” personal advice. This is likely to result in significant changes to the general risk advice industry. NIBA is currently reviewing the proposed change in conjunction with the other proposed reforms to ensure that consumers receive the same protections regardless of how they choose to access risk advice.
Recommendation 4: The existing best interest duty and accompanying provisions (including the safe harbour provisions) should be replaced by a duty to provide good advice. ‘Good advice' is advice that would be reasonably likely to benefit the client, having regard to the information that is available to the provider at the time the advice is provided.
Government Response: The Government will introduce a modernised and flexible best interests duty which will apply to all providers of advice. The existing primary obligation to act in the best interests of the client and to prioritise the interests of the client in the event of a conflict will be retained. The new best interest duty will provide clearer guidance for scaled or limited scope advice where this meets the client’s needs and for advice where the provider of the advice has limited, but relevant, information. The Government has previously announced the existing “safe harbour” steps will be removed, with legislation to implement this change expected in early 2024.
Impact for members: The government has yet to release details on their proposed changes to the best interest duty. However, references to “all providers of advice” suggest changes may be coming. NIBA will be monitoring any proposed changes closely to ensure members are not negatively impacted by any proposed changes.
Recommendation 9: The requirement to provide a statement of advice should be replaced with the requirement for providers to maintain complete records of the advice provided and to provide written advice to the client on request. This requirement will not apply to a person who is currently exempt from the requirement to provide statements of advice.
Government Response: Statements of Advice will be replaced with a more fit-for-purpose, principles-based, advice record which must address the following principles:
- subject matter/scope;
- the advice;
- reasons for the advice; and,
- the cost of advice to the client and/or benefits received by the adviser.
The requirement to give the record to the client will be maintained.
Impact for members: General insurance brokers are only required to provide Statements of Advice when advising on Consumer Credit Insurance and Sickness and Accident Insurance products. The Quality of Advice Review did not recommend changes to the current exemptions to the SOA obligations. As such, it is likely that the proposed changes will only apply to these products.
Recommendation 10: Providers of personal advice should either continue to give their clients a financial services guide or make information publicly available on their website about the remuneration and any other benefits the provider receives in connection with the financial services they provide and their internal and external dispute resolution procedures.
Government Response: The government has accepted this recommendation and has already released draft legislation to implement this change.
Impact for members: Brokers who provide personal advice will instead be able to direct clients to relevant sections of their website instead of providing an FSG. In their submission to the draft legislation, NIBA recommended that the current proposal be extended to general advice.
Recommendation 13.8: A person who provides personal advice to retail clients in relation to a general insurance product who receives a commission in connection with the issue or sale of the general insurance product, must obtain the client’s informed consent before accepting a commission.
Government Response: The government has accepted this recommendation and has already released draft legislation to implement this change.
Impact for members: While commission disclosure obligations under the Insurance Brokers Code of Practice are higher than those proposed by the QoA recommendations the obligation to obtain informed consent would add additional complexity for members. NIBA has raised concerns that the current proposal would likely result in clients being left uninsured.
Next Steps
NIBA has provided a submission to the first tranche of draft legislation detailing the commission disclosure and consent and Financial Services Guide reforms. NIBA is eagerly awaiting further details of the proposed reforms and looks forward to engaging with government to ensure any proposed reforms do not have unintended consequences for brokers and consumers seeking professional risk advice.