The Australian Law Reform Commission (ALRC) has detailed the feedback it received from stakeholders to changes to financial advice and definitions.
In a webinar outlining feedback to its financial advice legislation inquiry, it discussed feedback it had received about the terms ‘general advice’, ‘financial advice’ and ‘personal advice’.
These had become interconnected like a “set of nesting dolls”, it said, where the definition of one required looking at the definition of another.
Dr William Isdale, senior legal officer at the ALRC, said: “The ALRC proposes a suite of principles to reduce complexity in the drafting and use of definitions. Key defined terms should have a consistent meaning across corporations and financial services legislation and that interconnected definitions should be used sparingly”.
Some submissions had supported this but others warned of unintended consequences while a third set of stakeholders suggested additional Commonwealth application.
Isdale continued: “The ALRC’s view was that it was unnecessary to have all three concepts when one would suffice. In all instances where the overarching term was used, it could be replaced with the use of general advice or personal advice as appropriate.
“There is quite a clear distinction between the regulation of personal advice and general advice, so personal advice generally attracts a higher level of regulation. The ALRC considered we could more clearly demarcate the regulatory boundary and simplify the expression of the law by minimising the use of notional amendments and exemptions by decoupling those concepts.
“There was a recognition from stakeholders that there was unnecessary complexity caused by having three terms instead of two. Although some thought that reforming the law would create further confusion.”
The ALRC received 56 submissions from a range of stakeholders in response to the 24 proposals and questions proposed in the inquiry.
In response to the submissions, the ALRC also suggested renaming general advice to a term that “intuitively corresponds with the substance of the definition”, although it refrained from suggesting a specific term.
“Some stakeholders pointed out that there was a concern that if we were to proceed with that recommendation, it could give the impression that the underlying problem had been solved when, in fact, it hasn’t. And that real concern here is the way consumers of advice may be misled in practice which is likely due to the conduct of financial services entities and not because of the labelling.”
The commission said it would not make any changes until the final recommendations from the Quality of Advice Review had been published and a second ALRC interim report would be published in September.
