Letter to Members | Quality of Advice Review

Dear member,

As you are no doubt aware, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, has delivered the Federal Government’s final response to the Quality of Advice Review (QAR). The Government now proposes to frame the legislation to implement this new financial advice model in 2024.

The Minister’s statement claimed this comprehensive package will ensure Australians have access to quality and affordable financial advice when they need it most. The key features are:

• Modernise the best interests’ duty to ensure customers receive helpful advice, including on single issue or limited scope issues, at a high standard.
• Replace statements of advice with a record that is in plain English and provides helpful information to make an informed decision.
• Introduce a new class of financial advisers – to be “qualified advisers” – who can provide advice on simple topics, while being subject to the modernised best interests duty.

Your Association believes there are some positive aspects to what the Minister has delivered (see below for links to the Minister’s statement and Final Government Response to the QAR as well as the attachment: Delivering Better Financial Outcomes – Detailed Overview). But we have strong reservations about some key aspects of the Government’s proposed ‘reform’. What follows is our critique of this Government statement.

Advice – some positive steps

We welcome the proposal to introduce a modernised and flexible best interests’ duty that will see the removal of the ‘safe harbour’ steps. Reflecting the professionalisation of financial advice, advisers will be able to apply their professional judgement. It will also provide greater support for the provision of scaled or scoped advice to clients. When coupled with the replacement of statements of advice (SOAs), we believe these changes will make a material difference to the cost of advice.

This principles-based approach will accommodate a range of advice services from the provision of simple, single-issue advice to more comprehensive advice. The focus must be ensuring a consumer-centric document for clients. Supporting records will be crucial to demonstrate the detailed analysis and modelling undertaken to support any client recommendations.

It was also pleasing to see the Government’s announcement confirming that the Financial Planners and Advisers Code of Ethics 2019 will be reviewed following the implementation of the Delivering Better Financial Outcomes package. It will be essential to ensure that the Code is fit for purpose and operates as intended alongside the Government’s reforms. Concerns have persisted since the implementation of the Code and whether it operates as intended alongside existing legislated obligations. Aspects of the Code have been a cause for concern for some time, with a review and remediation overdue.

Qualified advice – an urgent rethink needed

The introduction of an alternative advice framework for the superannuation sector was anticipated and is necessary for the large superannuation funds to wholly discharge their duties under the retirement income covenant.

It was quite unexpected to see the banks included in these reforms, particularly given the Minister’s previous statements that any reform would be introduced for the superannuation sector first.

We acknowledge the need for broader advice to be available to consumers. But the introduction of a new category of adviser called a ‘qualified adviser’ has the potential to be misconstrued. It certainly requires much further consideration. At this stage it is difficult to assess the impact of this new category of adviser when the scope of advice, and the education requirements, experience, and supervision requirements which underpin it, have not been released.

We appreciate this is unsettling for the advice community that has been required to meet high educational and professional standards and we encourage the Government to expedite the release of further details so meaningful and constructive feedback can be provided and necessary changes made.

Accountants – still out in the cold

We are disappointed accountants have once again been left out in the cold. Despite accountants’ advice being included in the QAR terms of reference, there was again no mention of accountants, and the role they play in the advice process in the final report. The lack of a suitable model for appropriately qualified and experienced accountants is an opportunity lost and a poor outcome for consumers. It leaves a critical gap in the financial advice framework, particularly for SMSF trustees who have ongoing advice needs not involving product placement, portfolio management or discreet investment advice.

As we have repeatedly said, the limited licensing model is a dying model. As of 30 November 2023, only 598 accountants who are limited licensed advisers remain. Increasing licensing costs, ASIC adviser levies and now the compensation scheme of last resort will see this cohort continue to exit advice at a time when more licensed advisers are urgently needed. Put simply, it is not fit for purpose.

What’s been left out – our comments:

While the Government has now addressed many of the QAR recommendations, there are some notable omissions.

The Design and Distribution Obligations (DDO) measures (Recommendations 12.1 and 12.2) are an example. The existing DDO provisions add layers of reporting and administration obligations which do little to enhance consumer protection. The QAR recommendations were, in our view, practical measures that sought to remove unnecessary regulation and red tape.

Conclusion:

Importantly, these are announcements only at this stage and we are yet to see the exposure draft legislation. We look forward to working with our members in 2024 when the opportunity to consult on these measures begins.

Background information:

The details of the ‘delivering better financial outcomes’ overview paper are available here: https://treasury.gov.au/publication/p2023-471470 and the Minister’s statement here: https://ministers.treasury.gov.au/ministers/stephen-jones-2022/media-releases/government-unveils-comprehensive-financial-advice. The document, Delivering Better Financial Outcomes: Detailed Overview, is attached.