Mixed response to appointment of corporate lawyer to lead “Quality Advice Review”

The Federal Government recently announced the appointment of corporate lawyer Michelle Levy to head its “Quality Advice Review” (the Review).  

Industry reaction to the appointment varied wildly - independent financial advisers responded with criticism to the appointment, arguing that advisors, ASIC and AFCA should lead the review.  Conversely, peak bodies for financial planning, the FPA and SMSFA, supported the appointment.  

But this is nothing new – especially recently.  Government announcements concerning regulatory overhauls of the financial services and advice industry often attract disparate responses from different sectors of the industry.  

These reactions reflect the vexing questions facing the advice industry, and the frustration of industry participants, in particular remaining financial advisors, with what they say is an unmanageable regulatory burden, decreasing availability and affordability of advice and perceived delays in doing something about it.

The problems facing advisors are unquestionable – labyrinthine laws, lack of clarity about the actual practical requirements, a highly prescriptive compliance burden with elements of questionable utility to clients.  

Likewise, the problems facing consumers – a decreasing number of financial advisors and decreasing affordability of advice (all at a time when deposit returns have been at historically low levels due to near-zero interest rates, the availability of high risk investments at all-time highs, along with scams).

The Review will go some way to address some of these issues, perfectly or not.  Likewise, the current ALRC review of the legislative framework for corporations and financial services regulation should do likewise.  Each was the result of recommendations from Commissioner Hayne in 2017.

The question that is not being addressed is how the situation reached this point.  Perhaps for another time.

The Quality Advice Review

Senator Jane Hume, the Minister for Superannuation, Financial Services and the Digital Economy, made the announcement last week, and published the final terms of reference.  

Prompted by recommendations from the Hayne Financial Services Royal Commission in 2017, the Review will focus on the following issues:

• streamlining and simplifying regulatory compliance, to reduce duplication and costs (which are ultimately passed on to consumers)
• whether “principles-based regulation” could replace “rules-based regulation” in some areas;
• simplifying consumer documents, so they are clear and concise without unnecessary complexity; and
• whether parts of the regulatory framework have created undesirable unintended consequences.

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Key concepts considered in the Review will include: 

• the definitions of “general” and “personal” financial advice; 
• the possible repeal of the “best interests duty” safe harbour; and 
• whether consent arrangements for “sophisticated investors” and “wholesale clients” are working effectively (although it will specifically not look at any changes to these defined terms, which is the subject of the Australian Law Reform Commission’s (ALRC’s) parallel review).

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Scepticism from independent financial advisers

While Ms Levy, a partner at Allens, is a widely recognised expert in the areas of financial services, life insurance and superannuation law, this didn’t stop disapproval directed at Treasury from parts of the financial advice industry.

In an open letter to Senator Hume, the Association of Independently-Owned Financial Professionals (AIOFP) was highly critical of the broader context of the Review:

Theoretically the Government has done the sensible thing with seeking an opinion from a third party on the advice industry, but their delivery, motive and process are typically questionable.

Advice must be separated from product to protect consumers from product failure and the industry is tired of conflicted lawyers with no practical advice experience dictating terms.

The AIOFP was also suspicious of the Treasury’s timing, given that Ms Levy’s report to the Government is not due until December 2022, some 7 months after the latest date of the next Federal election.  The Association suggested that, given the known issues, an interim report could be provided before the election, so members could be properly informed before voting.

As an alternative review structure, the AIOFP proposed that a panel including the regulator (ASIC), financial advisers and the consumer complaints authority (AFCA) should be immediately formed after the election to fix the regulatory compliance burden issue, which it describes as “a total duplicated mess primarily caused by lawyers and funded by consumers.”

Praise from some sectors

In stark contrast, the Financial Planning Association of Australia (FPA) welcomed Ms Levy’s appointment, describing the Review as “the perfect opportunity to measure and assess the impact of all this regulatory change on the profession, and address the unintended consequences created such as the tick a box, rules-based, compliance-heavy advice process”.

Similarly, the Self-Managed Superannuation Fund Association (SMSFA) applauded the appointment, saying that Ms Levy will bring “the necessary expertise and experience to this critical issue of over-regulation that is confronting the financial advice industry”.

Conclusion

In the current circumstances, each view has merit.  Calls for a non-legal approach are understandable given the perception that the laws at the core of financial advice regulation are a large part of the problem.  But equally arguable is that the right lawyer is needed to cut through on such issues.  

Any substantive move by the Government to address the negative consequences of the volume, complexity and inconsistency within financial services legislation, that has clearly contributed to consumer harm as detailed in the Hayne Royal Commission, and impacted the industry, is welcome.

By the same token, any such review should include active engagement with and input from financial advisers of all types and sizes, and not rely only on lawyers or regulators with little to no practical, client-facing financial advice experience.

A separate question which will not be directly addressed by the Review or other assessments underway is how the situation actually reached this point - a series of piecemeal, reactive reforms to product, company and regulation failures, and the growth of a compliance apparatus that, unintentionally, appears to have consumed advice.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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