Michelle Levy pens open letter on QAR, urges action

I completed my report for the Quality of Advice Review and provided it to the government on 16 December last year. I made 13 recommendations (depending on how you count) which will, if adopted, meet the objectives of the review – to make quality financial advice accessible and affordable. They will also get rid of some of the documents that are not doing what they were designed to do and fix some problems with the existing law. Those problems are small but serious and they create risks for superannuation funds and in turn their members (that is, us).

The government released the report on 8 February this year and happily a broad range of participants across the financial services sector responded enthusiastically to the recommendations. These are people who do not always, nor even often, agree. These are people who also may not have loved all of the recommendations – in some cases they make giving advice harder and, in some cases, they introduce more competition. But they understood two things – the recommendations work together and they work for consumers. They said the recommendations will help them help their customers, their members and their clients. They will. They have not said the recommendations will help them sell products. They will not.

Less happily, the recommendations have not been received by the consumer bodies with as much enthusiasm. They said they are a ‘disaster’ and will lead to the next royal commission. The language is a little intemperate and it is, I assume, designed to stop the recommendations being adopted. I worry that they might succeed in spite of the fact that that would not be in the interests of the consumers they are meant to represent. I am also somewhat dismayed by the apparent weight given to their views. The laws applying to the provision of financial advice are detailed and complex. They have a long history and have been the subject of many court cases – they are not a subject upon which all opinions are equal.

I was appointed to lead the review as an independent expert. The recommendations are based on a close examination of the law, long experience with its application and wide consultation. The recommendations are supported by reasons and evidence, and I have addressed the concerns and reservations I heard during consultations and those I anticipated. But it is difficult to respond to mere assertions and silence.

The best reason I can come up with to explain the response of the consumer groups is that they think it will be easier for banks, insurers and superannuation funds to give financial advice and they think that is a bad thing, indeed, based on the media releases, a dangerous thing. But if that is the right explanation, it is not based on the facts.

The first thing I would like to say about the facts is that banks, insurers and superannuation funds give financial advice today and, in many cases, they give that financial advice to sell their products. In large part, they do this by providing ‘general advice’ – this is advice that does not take into account the customer’s personal circumstances, and which does not have to be in the best interests of the customer. If the recommendations are adopted, it will be harder for financial institutions to give advice that does not take into account their customer’s financial situation. That will increase the quality of advice and it is a very good thing for consumers.

The second thing I would like to say is that the recommendations will not mean anyone can give financial advice and they will not mean that the financial advice that is given can be of a poorer quality (to the contrary, it should be better).

It is true that some financial advice will not have to be given by a qualified financial adviser. But so much is consistent with the fact that not all financial advice is difficult, and some financial advice can be given by an algorithm rather than by an individual.

It is also true that in some cases the provider will not have a duty to act in the best interests of the client. But this is not a retrograde step. A best interests duty will apply to professional financial advisers – this is what it was intended for. But it will not and should not apply to an employee of a superannuation fund, insurer or bank. What does make sense is to require them to do what their customers want and expect – to give good advice.

I have recommended a duty that says just that. Poor or even ‘average’ advice is not good advice. Good advice will be advice that is fit for the customer’s purpose. The provider will need to think about the needs, and even the ‘interests’, of the customer and I am left scratching my head about why anyone is worried about replacing the best interests duty (which very few people understand) with a good advice duty for institutions that provide financial advice to their customers. This will improve the quality of the advice they give.

Minister Jones has said he is road-testing the recommendations. In the meantime, many of us have large debts and are struggling to save to buy a home or to pay rent. For those who own a home, many are struggling to pay their mortgage. According to the ABS, in 2020, 500,000 of us intended to retire over the next five years – all being equal, that’s 100,000 people a year – and each of them will need to make difficult and important decisions.

Financial advice cannot solve these problems, but it can help people make sensible financial decisions and those decisions should mean they are in a better financial position than they would be without advice. A lot of advice is incidental, and it should be given by the people who lend us money, who insure us and who invest our money. That advice should be personal advice and it should be good. Digital advice should be encouraged. It has the potential to reach large numbers of people, to increase financial literacy and to create interest in financial matters. And finally, financial advisers should be helped to use their professional skills to provide advice to their clients in the way that best suits their clients.

All of these things are important, and the recommendations are designed to achieve all of these ends. And so, I worry about the recommendations languishing on the minister’s iPad and I worry too about bargains and compromises. These are bad outcomes for consumers. You will excuse me if I am a little intemperate in my own language. And so, I have put pen to paper (or more accurately set my fingers to work on the keyboard) to encourage the minister and the government to adopt the recommendations in my report. If they need some refinement, it is better that that happens afterwards.

If there is some poor conduct (and there is poor conduct now, too), ASIC has all the powers and tools it needs to put a quick stop to it. In the meantime, the recommendations will, if adopted, achieve their purpose and the purpose of the review – to help more people get good financial advice as and when they need it.