After the release of the final Quality of Advice Review (QAR) report, the commissions brokers receive from insurers are safe. However, the reason for the review was to improve the accessibility and affordability of quality financial advice. Many in the financial services industry say that regulations are stopping institutions giving good advice and millions of Australians desperately need it.
Michelle Levy (pictured above), who conducted the review, has come up with 22 recommendations. If Levy’s recommendation are accepted by the government, how will they impact the way insurance brokers give advice?
On Wednesday, the Actuaries Institute hosted a seminar in Sydney. Michelle Levy was there to explain her report. Insurance Business attended. IB suggested to Levy that the debate around her review has focused on financial planners and super funds. However, insurance brokers also give advice, so how would her recommendations impact them?
“The world won’t change dramatically,” said Levy, a partner with Allens, an international law firm. “Specifically, nothing much will change. They’ll have a good advice duty and a best interests duty if they’re getting a commission.”
She said, according to her recommendations, brokers will also now need consent from their customers for the commission they get from insurers.
The Institute’s seminar brought together stakeholders for and against Levy’s recommendations.
“Some experts argue the Quality of Advice Review will bring in changes that make financial advice truly affordable and could add thousands of dollars each year to a retiree’s income,” said the Institute’s publicity blurb for the evening. “Others think that it will bring back the bad, old pre-Hayne Royal Commission days. Who’s right?”
In her opening remarks, Naomi Edwards (pictured below), incoming president of the Institute and event host, called Levy’s work a “game changing final report”. Edwards said happily that “the vast majority” of what her Institute argued for was in it.
Other stakeholders weren’t so happy.
Michael Rice, consulting actuary and former Rice Warner CEO, said the report set the bar “too low” for good advice.
“It’s better than what we had before but needs tweaking,” he said. Rice wanted more specific guidelines and what he called “event based advice.”
Xavier O’Halloran, director of Super Consumers Australia, a consumer advocate, said there are “too many gaps” and “grey areas” in consumer financial protections for Levy’s recommendations to work.
In an earlier media release O’Halloran warned that millions of Australians will be left “with the conflicted advice of banks and super funds.”
“It also opens up a bigger hole for advice fees to come out of super,” he said in the release.
However, most panellists and attendees were broadly in favour of Levy’s recommendations. Some pointed out that regulations protecting consumers have come a long way since the Hayne Royal Commission which helped uncover many thousands of cases of mis-selling and manipulation of consumers by the financial services industry.
Levy said, despite failing to convince some stakeholders, she hasn’t recommended rolling back consumer protections.
She reminded the audience that “vertical integration is alive and well and lawful” and that there is nothing illegal about the same company advising and selling a product.
Levy wants to stop “general advice,” that is allowed under the current regulations, being used to sell products. This rule, she said, has permitted financial institutions to mis-sell products to customers, going against the customers’ best interests.
Instead, she said her recommendations expand the “personal advice” (that is currently costly for consumers to get) to allow selling and giving free advice but with a “best interests duty” and “good advice duty” as protection for the customer. The adviser/seller is left to judge what is in the best interests of their customer or, presumably, face the regulatory consequences.
However, Levy said employees can’t be expected to go as far as siding with a customer against the interests of their employer and the company.
“It’s a duty of care to speak to customers and give them some sensible advice,” she said. “I just can’t get my head around the fact that people don’t think that that’s an obviously, sensible, good thing to want. Not to say, ‘I can’t help you guys, see a financial adviser.’ When they never will.”
Levy said she enjoyed her months spent undertaking the review. She said it was “an enormous privilege” but she did “feel the weight of the importance.”
What do you think of Michelle Levy’s QAR recommendations? Please comment below.
