Good advice duty could lead to more disputes: AFCA

Among the recommendations in the Quality of Advice Review (QAR) final report, QAR reviewer Michelle Levy said vertical integration is a “part of the answer” to the problem her review was trying to solve — the problem of too few Australians having access to financial advice.

“Financial information, guidance, and advice should be available throughout our lives, and it should respond to our needs and even anticipate them,” Ms Levy said.

“In my view, this means there should be a variety of providers. Not all advice can be provided by financial advisers, and nor should it be. The 16,000 financial advisers are required to hold relevant degrees and to comply with professional standards. They are entitled to charge a fair fee for their advice.”

Ms Levy’s recommendation is for vertically integrated product and personal advice providers to be bound by a duty to provide “good advice”.

Speaking at the Financial Advice Association Australia (FAAA) Roadshow in Sydney last week, newly appointed lead ombudsman for investments and advice at the Australian Financial Complaints Authority (AFCA), Shail Singh, said that while AFCA stays out of policy decisions, he would expect an increase in disputes if non-relevant providers can provide personal advice under the good advice duty.

“Some people will not see an adviser, and this is a way they can get advice. So, I get that and that’s a positive,” Mr Singh said.

“I think it will probably increase the number of potential disputes, because the definition of personal advice is broader. Then it will be a question of interpreting what good advice means by a non-relevant provider.

“I think there are risks in leaving it to industry to determine whether a non-relevant provider or a relevant provider should provide the advice because … there’s things that look on their surface, quite simple, that can have very severe consequences for consumers.”

Ms Levy previously addressed concerns that a prospective good advice duty would lower the quality of advice, due to misinterpretations of the “good” standard.

“A duty to give good advice is not, and is not intended to be a duty to give ‘OK’ advice or ‘good enough’ advice,” she said.

“I think most people would agree that ‘OK’ and ‘good enough’ do not reach the level of ‘good’.

“Nevertheless, I understand that knowing what is good in a particular case might be difficult and so I do accept there is a need for a definition of good advice.”

Mr Singh added that the potential consequences of non-relevant providers giving personal advice include the possibility of loss of insurance, tax consequences, and implications on super caps.

“There’s all sorts of little tricks in there that I think would be better provided by relevant providers than non-relevant providers,” he said.

“I think that will be a tricky area to navigate. But I think the consequences for AFCA if it’s implemented is there will probably be more disputes because there’s more people giving advice and interpretation of what good advice means for particular circumstances.”

Speaking at AIA Australia’s Adviser Summit in March, Mr Singh said AFCA received a total of 2,211 complaints related to financial advice in 2022, though the vast majority were related to Dixon Advisory.

“If you take Dixon Advisory out, we end up at 483 complaints received, which is down 47 per cent from the previous year,” Mr Singh said.