QAR report: Providing quality advice to more Australians

By Luke Kidd

The Quality of advice review (QAR) was commissioned by the Morrison Government in March 2022 to examine Australian’s ability to access quality, affordable and accessible advice. Conducted by Michelle Levy, the review was completed in December 2022 and released to the public on 8th February 2023. Those interested can access the 267-page report here.

This review comes at a time where the financial advice industry is undergoing several significant changes as it matures into a recognised profession. While only a report at this stage, the recommendations in the QAR have received broad support from financial institutions including superannuation funds, banks and life insurance companies, as well as major financial planning associations including the FPA and AFA. The report has received some scrutiny as well, namely concerns about changes to consumer protection laws. We believe that the report raises some important issues in the financial planning landscape that need to be addressed by government.

More Australians need advice, and it is harder to find.

Levy states that as of 2021, approximately 61% of Australians have unmet advice needs with only 16% seeking advice within the previous 12 months. With the ‘baby-boomer’ generation now reaching retirement age this need for advice is expected to increase. In the year 2022, approximately 250,000 Australians entered retirement and 60% used their superannuation savings to achieve this [1].

The 2020 retirement income review identified that the complexity of the financial system, poor financial literacy and a lack of planning are leading Australians toward poor outcomes in retirement. It identifies that people need quality advice in order to best meet their long-term retirement goals [2].

However, as the demand for advice has been rising, the number of registered financial advisers has dropped by an incredible 38% since mid-2019, from 26,500 to 16,600 [3]. This is due to factors such as regulatory changes and institutional divestment from the industry.

So at a time where more and more people need financial advice there has been fewer professionals available to deliver that advice. Social media ‘finfluencers’, websites and call centers are filling this unmet advice gap. These sources are limited in the information they can provide consumers both in quality and scope. As these entities are not registered advisers, they cannot provide personal recommendations to people and are not required to consider a client’s goals, circumstances or best interests. For complex advice areas such as retirement planning, estate planning or personal insurance this can lead consumers to making significant mistakes that have life-long implications.

Challenges in providing advice.

Currently, financial planners need to follow a prescriptive set of procedures when delivering financial advice. For consumers, this means that even simple changes to a financial strategy take weeks to implement and require clients to pore through dozens of pages of disclosure and compliance documents. This all creates additional costs for advisers which is ultimately passed on to the client. A rigorous process is important to ensure that any recommendations are appropriate, however many Australians are unable to access the advice they need due to the costs involved [4].

Levy has recommended simplifying the way advice is documented, streamlining the regulatory environment, and removing some of the burdensome work currently required that does not add value to the client’s experience of receiving advice. If advice can be quicker and easier to deliver it will allow more people to access advice, reduce the costs involved and make the process more rewarding.

Good quality advice remains.

Registered financial advisers have a fiduciary obligation to provide advice that put’s the client’s best interests first and foremost. The Financial Planners and Advisers Code of Ethics [5] requires all advisers to uphold this duty and to embody the values of trustworthiness, competence, honesty, fairness, and diligence. The QAR report does not recommend that these fundamental principles be removed, maintaining that advisers need to continue to put their clients first. Instead, moving from a prescriptive ‘top-down’ regulatory environment to a principals based one will allow advisers to use their professional judgement on how to best meet their client’s financial objectives and needs.

Our view.

We would welcome any reforms that make it simpler and easier for Australians to access good quality advice. Some of the recommended reforms may allow institutions such as banks and super funds to provide small scale or simple advice, however we do not believe that this will be wholly sufficient for most people in tackling big life changes as it may still leave a lot of needs unmet. In working with our clients though a comprehensive advice process, we are able to unpack the way that issues such as tax, super, Centrelink, investments, debt, cash flow, insurance and estate planning overlap and interact with one another to ensure that our clients have the best possible chance of meeting their goals, no matter what life throws at them. When delivering advice of any kind, we will continue to uphold our professional values of delivering a valuable and quality service that puts our clients first.

References:

[1] Challenger 2022, ‘Retirement phase grows at pace’, Challenger, 22 February, retrieved 23 February 2023, https://www.challenger.com.au/institutional/insights/retirement-phase-grows-at-pace

[2] Financial Planners and Advisers Code of Ethics 2019 (Cth) s.5

[3] Rainmaker 2022, ‘Australia’s financial adviser numbers in 2024’, Rainmaker, 28 September, retrieved 23 February 2023 https://www.rainmaker.com.au/media-release/australias-financial-adviser-numbers-in-2024#:~:text=The%20number%20of%20advisers%20in,in%20the%20last%20three%20years

[4] The Australian Government the Treasury 2020 ‘Retirement Income Review - Final Report’, retrieved 23 February 2023, https://treasury.gov.au/publication/p2020-100554

[5] The Australian Government the Treasury 2022, ‘Quality of Advice Review - Final Report’ retrieved 23 February 2023, https://treasury.gov.au/publication/p2023-358632

Luke Kidd in an authorised representative of Alliance Wealth Pty Ltd. (AR: 001242685)