Levy explains why non-relevant providers are key to increasing access to advice

A key recommendation in the final report from the Quality of Advice Review released on Wednesday is to expand the definition of personal advice within the Corporations Act.

“The purpose of the recommendation to expand the definition of personal advice is to improve the quality of financial advice,” Michelle Levy explained in her report.

“Advice is more likely to be quality advice if it responds to the objectives, financial situation, and needs of the consumer, and so this means the obligations attaching to personal advice must require the provider to consider such of them as are relevant to the advice.”

According to Ms Levy, this raises questions surrounding accessibility and affordability. While the law currently requires a person who gives personal advice to consider a client’s objectives, financial situation, and needs, she claimed that too few are willing or able to do so.

“And so, the purpose of the review would be undermined by my recommendation to expand personal advice unless more providers are willing and able to provide personal advice,” Ms Levy suggested.

Specifically, Ms Levy has recommended that the definition of personal advice be broadened so that “all financial product advice will be personal advice if it is given to a client in a personal interaction or personalised communication by a provider of advice who has (or whose related body corporate has) information about the client’s financial situation or one or more of their objectives or needs”.

“Personal advice means financial product advice prepared or adjusted for or directed to a particular client in circumstances where: a) the client tells the provider of the advice their financial situation or one or more of their objectives or needs; or b) the licensee responsible for the advice, or a related entity of the licensee, if the licensee is a body corporate, holds information about the client’s financial situation or one or more of their objectives or needs,” the final report reads.

If this recommendation is enacted, Ms Levy noted that more advice would be personal advice. This, in the current setting and under the current law, would mean this advice would have to be given by an adviser — something Ms Levy thinks is deeply flawed.

“There are only around 16,000 financial advisers in Australia and their numbers are declining.

“If the regulatory framework continues to require all personal advice to be given by a financial adviser (where it is given by an individual), it would exacerbate the existing accessibility and affordability issues which are part of the reasons for this review,” she said.

“Happily, I do not think it is necessary or in the interests of consumers to require all personal advice to be given by a financial adviser.”

According to Ms Levy, the spectrum of financial product advice is “very broad” and there are “simple questions that can be answered simply”.

“It is also clear that even where the advice is not simple, many of us have common needs and so not all advice is unique. This means that technology and digital advice tools can be used to support people who are not financial advisers to provide personal advice, which without that support, could only be provided by financial advisers,” she said.

“Digital advice tools can also be made available directly to consumers. Some already are and improvements in technology mean that they are increasingly able to provide more sophisticated personal advice.”

While acknowledging that advisers have skills and expertise that put them in a position to provide a real benefit to their clients, Ms Levy said that the regulatory regime must allow other advice providers to provide personal advice to consumers to increase accessibility.

“We have been told during the consultation process that, with the right regulatory framework, product issuers would like to provide more personal advice to their customers (or in the case of superannuation funds, their members),” she noted.

“They should be encouraged to provide helpful personal advice to their customers and members. The regulatory framework should therefore assist them to do so.”

Ms Levy added that it was “impractical and unnecessary” to require product issuers to recruit financial advisers to provide all of the aforementioned advice.

As part of her recommendations, Ms Levy suggested that the Corporations Act be amended to say 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,” Ms Levy said.

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.