Terms of Reference released

On the 11 March 2022, the government released the final Terms of Reference for the Quality of Advice Review, due to be completed this year and confirmed that Ms Michelle Levy will lead the review.

Announcing the release of the Terms of Reference, Minister for Financial Services, Superannuation and the Digital Economy Jane Hume said that the review gives effect to the government's response to three Hayne Recommendations, 2.3, 2.5 and 2.6.

For context, 

• Recommendation 2.3 recommended that a review into the effectiveness of existing measures aimed at improving the quality of advice be completed 'preferably by 30 June 2022, but no later than 31 December 2022'.  Commissioner Hayne also recommended that the review include consideration of whether the 'safe harbour' provision in s961B(2) of the Corporations Act 2001 (Cth) (Corporations Act) should be retained.  His view was that 'unless there is clear justification for retaining that provision, it should be repealed.'
• Recommendation 2.5 recommended that the planned ASIC review of conflicted remuneration relating to life risk insurance products and the operation of ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 should consider whether 'there is a clear justification for retaining those commissions' and that the cap 'should ultimately be reduced to zero' if not.  Minister Jane Hume has confirmed that the Quality of Advice review 'will cover the review of life insurance commissions that had been progressed by ASIC'.
• Recommendation 2.6 recommended that the review referred to in Recommendation 2.3 also consider whether 'each remaining exemption to the ban on conflicted remuneration remains justified, including: the exemptions for general insurance products and consumer credit insurance products; and the exemptions for non-monetary benefits set out in section 963C of the Corporations Act'.

The Quality of Advice Review will include consideration of fee disclosure and consent requirements, including reforms introducing annual renewal of ongoing fee arrangements (Hayne Recommendation 2.1).  

Purpose of the Review

The government identifies ensuring access to affordable, high quality financial advice as the key aim of the review.  Streamlining regulatory requirements and lessening the existing costs/compliance burden on advisers, including through increased use of technology, is presented as an important aspect of achieving this aim.  

Broadly, the Review will explore: 

• the potential to 'streamline and simplify regulatory compliance obligations to reduce cost and remove duplication' 
• the potential to reduce compliance costs by replacing rules-based regulation with principles based regulation
• whether documentation and disclosure requirements can be simplified to better meet consumer needs
• whether 'parts of the regulatory framework have in practice created undesirable unintended consequences and how those consequences might be mitigated or reduced'.

Details: Scope of the review

The Review will include examination of the legislative framework for financial advice including:

• Whether concepts such as 'financial product advice', 'general advice' and 'personal advice' could be 'simplified' or 'more clearly demarcated' as well as how these terms are understood/used by consumers.  The role and scope of advice that is termed - 'scaled', 'intrafund' or 'limited in scope'- will also be considered.
• Whether the safe harbour provision in s961B(2) of the Corporations Act 2001 should be repealed (or whether there is sufficient justification to retain it)
• Existing financial advice documentation and disclosure requirements including statements of advice
• Fee disclosure and consent requirements, including reforms to introduce annual renewal of ongoing fee arrangements (Hayne Recommendation 2.1)
• The impact of the life insurance remuneration reforms, and in particular, 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 (Hayne Recommendations 2.5 and 2.6)
• 'The application of the advice framework to certain activities and professions including consideration of Recommendation 7.2 of the Review of the Tax Practitioners Board'.  For context, Recommendation 7. 2 recommended that that the government 'initiate a specific review of what advice accountants can and cannot give in respect of superannuation and which accountants that might apply to initiate a specific review of what advice accountants can and cannot give in respect of superannuation and which accountants that might apply to'.
• 'Whether consent arrangements for sophisticated investors and wholesale clients are working effectively for the purposes of financial advice'.  
• Actions undertaken by ASIC, including regulatory guidance and class orders
• The role of financial services entities and professional associations.

'As relevant' the Review will also 'have regard to' (among other things): the potential for increased use of technology to enable 'mass market adoption of low cost advice', opportunities to reduce compliance costs for industry, structural changes in the sector and 'other key regulatory developments' eg the Consumer Data Right, Retirement Income Covenant and Design and Distribution Obligations.

Out of scope

The Review will not make recommendations on the following.  

• The new disciplinary and registration systems for advisers (Royal Commission Recommendation 2.10); the reference checking and information sharing protocol (Royal Commission Recommendation 2.7); or the obligation on licensees to report serious compliance concerns (Royal Commission Recommendation 2.8) and to take steps when they detect an adviser has engaged in misconduct (Royal Commission Recommendation 2.9)
• Changes to the definitions of ‘retail client’, ‘wholesale client’, and ‘sophisticated investor’, including the income and asset thresholds.  The draft terms of reference (previously consulted on) proposed that the review would consider 'the processes through which investors are designated as sophisticated investors and wholesale clients, and whether the consent arrangements are working effectively'
• The professional standards for financial advisers
• Financial services redress arrangements
• The application of taxation and privacy laws to financial advice.

Timing 

The review will be led by Michelle Levy, supported by a secretariat within Treasury.  

The timeframe for completion of the review is unchanged from that put forward in the consultation.  The final report will be provided to the government by 16 December 2022.  

Interested in this topic?

Read about tracking progress towards implementation of all 76 Hayne Recommendations.  

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[Sources: Minister for Financial Services, Superannuation and the Digital Economy Jane Hume media release 11/03/2022; Treasury Quality of Advice Review; Terms of Reference]