Personal advice would apply more broadly and a “good advice” duty would replace the “best interests” obligation under a proposed revamp that would have implications for insurers and brokers, and which has sparked consumer group concerns that protections may be wound back.

Quality of Advice Reviewer Michelle Levy says in a consultation paper released by Federal Treasury that “changes need to be substantial if financial advice is going to be widely accessible and truly affordable” and the paper’s proposals are intended to make processes easier for consumers and providers.

“In my view a more direct and better way to regulate the provision of advice is to start precisely where the current regime does not - with the content of the advice,” she says. “Consumers want good advice – not documents and processes. And advice can be more easily measured and assessed than conduct.”

The Insurance Council of Australia told insuranceNEWS.com.au today it would be examining the report in more detail.

The Financial Services Council says the paper provides a sensible roadmap toward reducing red tape and cutting costs, while consumer group Choice says the reforms would set protections back 15 years.

The paper proposes personal advice should apply when a provider has information about a client’s objectives, needs or any aspect of their financial situation, replacing a definition where the provider “actually considers” those issues.

General advice not captured by the change wouldn’t be regulated as a financial service, with the related warning no longer required, but existing consumer protections would apply.

McCabes Principal Mathew Kaley says information gathering as part of underwriting would mean the proposed changes could be significant for insurance.

“Given that insurers and intermediaries would normally have at least some information about their client's objectives, financial situation or needs, based on these proposed changes they would need to either accept that they will be providing personal advice or fall back to just providing factual information,” he said today.

The report proposes replacing a best interests’ obligation with a duty to provide “good advice” that would be “reasonably likely to benefit the client”, having regard to information available at the time.

Ms Levy says the current regime is poorly suited to financial institutions including banks and insurers that may want to give personal advice, doesn’t suit digital advice providers and doesn’t even work well for financial advisers and advice licensees.

Ms Levy favours a principles-based approach involving fewer defined terms, less prescription and more flexibility, and notes that a range of reforms flowing from inquiries, including the Hayne royal commission “provide a firm foundation of consumer protection”.

But consumer groups issued a joint statement warning against the proposed removal of the best interests obligation, with Choice saying it was if the royal commission “had been forgotten”.

Consumer Action Law Centre CEO Gerard Brody says one of the six principles of the Hayne royal commission was “when acting for another, act in the best interest of the other”.

“Recent reforms to prevent mis-selling and inappropriate cross-selling, such as the deferred sales model for add-on insurance or the ban on unsolicited selling financial products, addressed problems that cost Australians hundreds of millions of dollars,” he said.

“Any reform to advice laws need to embed these reforms, to ensure people are only sold products that are in their best interests.”

The inquiry is also looking at whether an insurance exclusion from the ban on conflicted remuneration should still apply, but Ms Levy says information is still being collected and the interim paper doesn’t include proposals on the issue.

“We are currently analysing qualitative and quantitative data from general insurers and expect to receive life insurance data from ASIC by the end of September,” Ms Levy says.

The review doesn’t plan to release another consultation paper, but stakeholders will have the opportunity to discuss proposals as they are developed and provide feedback.

Submissions on the consultation paper are due by September 23, with a final report due by December 16. The paper is available here.