It’s no secret the financial advice framework needs improvement. Year on year, the SMSF Association receives feedback on the need to take action to address the advice framework and to help restore the community’s trust and accessibility of advice to improve the financial well-being of all Australians.
There is no doubt that over the coming years, policies will need to be focused on removing the need for multiple licences, registrations, regulators and associated levies to reduce the costs of providing financial advice.
But when the discussion begins about what exactly needs to improve and where consumers unmet advice needs are, strategic superannuation advice is always the hot topic. SMSFs as part of this are no different.
It’s the very reason a limited licencing advice framework was created and is now subsequently struggling to find its place in a burdened advice system. The same can be said for the intra-fund advice framework.
Currently, the complex limited licence framework for SMSF accountants and advisers, the carve out for intra-fund advice for superannuation trustees and the lack of clarity around scaled advice for licensed advisers can all provide different advice outcomes.
Breaking it down, it is the ability for professionals to provide specific single-issue advice or ‘scaled advice’ that is extremely limited. The ability for consumers to receive consistent, affordable and scaled advice around just superannuation likewise. In addition to the factors mentioned above, it is also FASEA standards, a new code of ethics and, in some cases, licensee influence that further make the provision of ‘scaled’ advice challenging.
So, what can be done right now?
We know there are unmet advice needs in the market and we also know there are regulatory hurdles which make providing this advice difficult. No clearer evidence of that was the need for ASIC to provide relief to industry so advisers could provide affordable and timely financial advice during the COVID-19 pandemic. This allowed registered tax agents to give advice without an AFSL and provided for licensed advisers to use a Record of Advice rather than a Statement of Advice.
We also know ASIC are conducting a review on this advice gap and unmet advice needs. ASIC wants to understand the impediments to delivering scaled and affordable advice and to what extent those impediments are something the industry or ASIC or both bodies can deal with together.
Their research indicates consumers want scaled affordable advice, but the industry has great trouble delivering scaled and affordable advice.
In addition, Senator Hume has indicated a broader and more prominent role for single-issue advice.
It is these foundations therefore, which need to be built on to make the provision of single-issue advice a key proponent of any future advice framework.
What does scaled advice or single-issue advice look like?
Well funnily enough, the guidance is there. It just struggles to be used and be effective.
This guidance is ASIC Regulatory Guide 244 and is the perfect foundation for the provision of single-issue advice.
An illustration is example 3 in Regulatory Guide 244 regarding a retirement savings health check for a couple. The couple seek advice about whether they are on track with their finances in the lead-up to their retirement. They are not interested in product advice.
In this example, ASIC detail that the adviser must undertake a standard investigation of circumstances and objectives.
ASIC’s guidance then details, “Tim (the advice provider) decides the scope of the advice by using his judgement to establish that the scope of the advice is consistent with Bruno and Rosa’s (the couple) relevant circumstances and the subject matter of advice that they are seeking. In this example, Tim provides strategic advice, but not product advice, and complies with the law, including the best interests duty and related obligations.”
The example then highlights the advice and recommendations the adviser provides to the couple and how it should be conveyed in a short statement of advice document (akin to a ROA).
One of these advice recommendations is to implement a transition to retirement pension.
As we have highlighted in many previous submissions and commentary it’s the ability to provide advice and recommendations, such as a transition to retirement pension in the example above, that is stifled due to the current regulatory burden.
We have the guidance, what’s next?
Well now we need to understand further why this guidance isn’t being used and remove those blockages.
What role does the FASEA code play in restricting advisers and their licensees from providing the advice like in the example above? FASEA believes it doesn’t.
Or is it conflicting guidance from ASIC that restricts advisers from having the full confidence in providing a scaled down piece of advice that is specific to a single issue?
Do advisers have the real ability to provide scaled advice and ‘scale up and down’ aspects of their advice when they are aware of other client circumstances that currently forces them to be more comprehensive than the client desires? Surely, it is the consumer who is able to demand the advice they require with the adviser providing the appropriate scoping.
Do licensees need to work more closely with ASIC so they can give their advisers the freedom to engage in the type of advice consumers are calling out for?
In our opinion, it is a mixture of all these and something the SMSF Association is working to understand. With these answered, the provision of single-issue advice is not far away.
And the ultimate nirvana?
If single-issue advice can be implemented effectively for advisers to provide affordable, understandable and quality recommendations to consumers, then we can move onto bringing even more appropriately qualified trusted advisers into the advice framework who wish to provide just this type of advice. I know I can think of a few.
Opinion piece written by
Franco Morelli, Policy Manager