The government will officially pursue the “quick wins” promised to financial advisers and will add clarity for expanded advice for super funds as part of its response tothe Quality of Advice Review.
QAR lead Michelle Levy’s marquee non-relevant provider advice provision will be up for further consultation, meaning the advice profession will be under no obligation to campaign for the controversial measure since the Minister will accept other recommendations à la carte.
Minster for Financial Services Stephen Jones spoke at a breakfast hosted by the Association of Superannuation Funds of Australia on Tuesday morning, where he confirmed many of the hints he has dropped at various public briefings this year.
The government will adopt 14 of the 22 QAR recommendations “in full or in principle today” and has not ruled out accepting the final eight recommendations, with a finalised position by the end of the year.
As noted during a post-budget briefing with the Financial Services Council, the changes have been broken into three streams: stream one will focus on red tape reduction; stream two on expanding access to retirement income advice, and stream three will explore new channels for advice.
“In terms of priority, I believe it is more urgent that we fix the problems for financial advisers and help the five million Australians, at or approaching retirement, get access to more retirement income advice,” Jones said in the speech to ASFA, which was uploaded to Treasury’s website early on Tuesday morning.
While this meant changes that help advisers and super funds give more advice are a priority, the potential inclusion of banks and other institutions will be dealt with down the track. “I’m just not compelled that the same urgency exists in these other spaces,” he said.
However, Jones made clear these changes were not being implemented on behalf of institutions, super funds or advisers, but for the benefit of consumers.
“This is a conversation that was started by my predecessors who implemented the Future of Financial Advice reforms and continued by Hayne in his landmark Royal Commission,” Jones said.
In a media release following the government announcement, FSC chief executive Blake Briggs said the government is right to prioritise stream one reforms but warned against narrowing the scope of reforms in streams two and three.
“Financial advice is weighed down by unnecessary and costly regulation and documentation requirements that can be simplified to improve the quality of advice provided to consumers,” Briggs said.
“In its second and third streams the Government is at risk of unnecessarily restricting the number of institutions that can invest in new advice solutions, which could result in too many Australians missing out on quality financial advice at key stages of life.”
A poll of advisers by ETF provider BetaShares found nearly 85 per cent of respondents supported the implementation of at least some of the QAR recommendations. However, only 57 per cent believed they would make advice more accessible.
Go time for super
One of the more controversial moves may be Jones’ willingness to accept Recommendation 6 which amends the restrictions on collective charging by super funds.
“As Treasury is working on implementing the recommendation for superannuation funds to provide more advice, it will explore with industry what would be required to tailor the model for other institutions and whether this will make a positive difference for consumers,” Jones said in the ASFA speech.
Recommendation 6 suggested removing the collective charging of fees by super funds, a move that Choice controversially said would lead to another royal commission which saw banks and super funds pay remediation for fees for no service.
However, in a media release following the ASFA breakfast, the association’s deputy CEO Glen McCrea said the reforms will improve access to financial advice and retirement outcomes.
“They will also increase the efficiency, cost-effectiveness, and consumer experience of advice,” McCrea said.
“Superannuation funds are well placed to deliver the financial advice that consumers want and need. This can range from relatively simple advice around a single issue such as contributions or investment options, to more holistic advice around retirement.”
AustralianSuper, Australian Retirement Trust and the Australian Institute for Superannuation Trustees all welcomed the government’s response.
Jones’ plan for super funds has drawn at least one supporter from the advice profession, with WT Financial Group CEO Keith Cullen backing the proposal.
“We absolutely support the need for super funds to be able to provide simple, episodic and transactional advice – the appropriate guard rails will be imperative,” Cullen said.
Both Cullen and Financial Advice Association CEO Sarah Abood noted the Government’s willingness to consult on the minimum education standards and the scope of the funds’ advice duty.
Consumer groups cautiously optimistic
Choice CEO Alan Kirkland praised the government for not accepting any of the recommendations that would have opened the doors for banks, insurers and fund managers to give more advice.
“The recommendations that would have slashed consumer protections for advice provided by banks, insurers and fund managers were criticised by a broad range of stakeholders, including academics and independent financial advisers,” Kirkland said.
However, Super Consumers Australia, which has counselled caution on the expansion of intrafund advice, welcomed the “considered” approach from the Government.
“The careful path forward recognises the risk of harm from super funds dressing up product selling and retention strategies as ‘retirement advice’,” SCA director Xavier O’Halloran said.
“We look forward to engaging with the process to define what and how retirement advice and information can be provided by super funds.”
Meeting adviser commitments
The red tape changes Jones had hinted at for advisers throughout the year, including at the Conexus Financial QAR Roadshow, have been confirmed.
Included in stream one will be the removal of the safe harbour steps from the Best Interest Duty, with consultation to determine the remaining parts of QAR Recommendation 5 (replacing it with a statutory BID will be up for consultation).
Additionally, Recommendations 8 to 10 have been accepted, covering streamlining fee renewal and consent into a single form, removing the requirement to provide a fee disclosure statement, and more flexibility over how to distribute the financial services guide.
Removing Statements of Advice has been “accepted in principle” – instead of removing SOAs completely, the government will consult on the design of a shorter, simpler advice document.
Jones has acknowledged the need for SOAs to be changed but has previously suggested the advice documents would not be removed all together.
In addition to fee consent, standardisation will be introduced for establishing whether a client is wholesale or sophisticated (QAR Recommendation 11), as well for commissions in life, general and consumer credit insurance.
AMP Advice CEO Matt Lawler said the changes should increase advisers’ capacity and help them take on more clients.
“There’s still details to work out… but if we release 15, 20, 30 per cent capacity, we have no doubt that’s going to be filled up with dealing with more customers,” Lawler said.
The FAAA’s Abood said Jones’ response acknowledges the concerns of the advice procession “have been heard”.
“It is a sensible package that will alleviate much of the unnecessary red tape involved in providing financial advice,” she said.
While the government has outlined its response and the direction it will take for financial advice, the potential expansion of who can give advice will be consulted on later in the year.
The government will consult on expanding the provision of advice by other institutions, along with the definition of personal advice (Recommendation 1), removal of the general advice warning (Recommendation 2), and allowing non-relevant providers to give advice (Recommendation 4).
Additionally, the replacement design for SOAs and the Code of Ethics will be included as part of the consultation.
The government will issue its final response on the “delivering better financial outcomes” package later in 2023.
“Government consultation will test how these proposals might operate under different advice models, including digital advice models, and across sectors,” the announcement said.
“Consultation will also consider practical policy design and implementation issues, including in relation to consumer protection.”
One of the less-discussed recommendations (13.6), which suggested a separate review of timesharing schemes, has been accepted but will take place after completion of the review into the framework of Managed Investment Schemes.