Financial services sector holds its collective breath as government prepares response to Levy report

The worst outcome would be for the government to not take any action.

As Australia returns to work, the wealth-management sector (including banks, super funds and ­financial advisers) is eagerly awaiting the response of the federal government to the ­report on the quality of advice, which was delivered in December by Allens partner Michelle Levy.

Levy was commissioned to undertake the review by the previous Coalition government early last year and delivered her report to a very different government in December.

As was clear on Tuesday night at a gathering in Sydney hosted by financial services PR firm PritchittBland, where Levy spoke, players in the game are looking for an idea the views of the Albanese government are in this area.

With the government still to release her report and deliver its reaction to it, Levy was in the difficult position of not being able to discuss the specifics of her recommendations – but, astute lawyer that she is – she managed to make her general views clear.

There was a general sense of anticipation from those attending that the financial advice sector is at a turning point.

Increasing rounds of regulation have resulted in financial advisers leaving the profession in their thousands. The number of advisers have fallen from 26,500 in 2019 to 16,671 at the end of last year at a time when 25 million Australians are facing far more complex decisions about their financial lives than they ever have before.

Having heard an experienced lawyer who specialises in the sector and has lived through the crises of consumer confidence around it, deliver a thoughtful and detailed report of several hundred thousand words, the question is: will the government bite the bullet on major reforms?

Allens partner and report author Michelle Levy. Picture: Nick Cubbin

Is it prepared to deliver reforms that could substantially open up the financial advice market and make it available and cheaper to a broad range of ­people, or will it take a cautious view with some tinkering around the edges that might not offend consumer groups but that won’t change things much?

Assistant Treasurer and Fin­ancial Services Minister Stephen Jones is expected to make an announcement soon.

There are a wide range of views on what should be done.

As Levy said, the one thing she learned in her months of involvement in the review last year was that everyone agreed the system wasn’t working. As she pointed out, the system only has 16,000 people advising a potential 25 million Australians with the strict requirements of what they can and can’t do, forcing them to charge higher prices for their services, ­effectively focusing on the wealthier in society.

There are three major ways to change the system: reduce, streamline or modernise the restrictions on advisers; allow a broader range of players to become advisers or to give advice; and open the way for a broader use of technology in providing plain vanilla advice on the myriad of smaller financial decisions ­people make in their daily lives.

Levy’s draft proposals, released in August last year, are a good guide to her thinking.

She put forward 12 preliminary proposals, including a much broader definition of personal ­financial advice, the ability of “non-relevant” providers such as banks and digital advice providers to provide simple advice, dropped the requirement to provide statements of advice or records of advice; and the removal of Safe Harbour and Best Interests Duties and replacing it with the obligation to provide “good advice” for people other than registered financial advisers.

As Levy says, her task was to make recommendations on ways to improve the accessibility and affordability of financial advice.

Making it easier for advisers to do their jobs and for more institutions to be able to give advice, she argues, is the best way to deliver on this for consumers.

While she didn’t go into fine details, Levy admits that her proposals for reforming the law around financial advice will represent a big change in the system and are “quite hard”.

In short, she argues, “they are intended to simplify the law with a view that people want to do the right thing – but with the stick at the other side about the enforcement of penalties”.

Assistant Treasurer and Minister for Financial Services Stephen Jones in parliament. Picture: Gary Ramage

She argues that there are already a broad base of consumer protection laws in place that “provide a very sound base on which we can start to move away from the prescription we have in the current law – things which not only make things harder for financial advisers but they are an impediment to accessible and affordable advice, and detrimentally affect the quality of advice”.

She says her recommendations include changes that could be implemented quite quickly.

Levy is a passionate advocate for the need for more people to get advice.

“I don’t think we are in a situation yet where technology can replace people,” she said, referring to the current debate about ChatGPT and artificial intelligence, and the potential for it to be used to provide advice.

“Technology can do a lot, but there is a real need for financial advice. The way to make it more accessible is to move away from just relying on 16,000 people to provide that advice.”

From her comments and her experience, it is inevitable that Levy’s recommendations will have their critics.

There are many more potential players including superannuation funds – and some say banks – looking to play a role in the sector, watching which way the government will jump.

As Levy says, the current system is not working for the great bulk of the population.

Even in the case of superannuation, she said, “there is so much uncertainty and anxiety and nervousness. People do want advice about their super. (Even if they are in a good fund) they need that confidence”.

Levy had no hesitation when asked what her worst nightmare was: “The worst thing that could happen is that nothing happens.”

Lack of action on Medicare reform has led to poorer sections of society becoming worse off.

Lack of action on the laws around financial advice will continue to count against the poor and even middle class people wanting to make good financial advice and avoid bad ones.

Not everyone will agree with Levy’s proposals but, as she says, the worst thing could be if the government ducks the issue of reform altogether.