The government’s Delivering Better Financial Outcomes bill, which was tabled in Parliament last week and attempts to implement some of the recommendations of Michelle Levy’s Quality of Advice Review, has been plagued by a drafting mistake that could further delay the reform process.
Little-publicised provisions in ‘Part 5’ of the bill relating to insurance commissions suggest that the exemption to conflicted remuneration rules previously agreed to by the Albanese government would only apply when “the licensee, or representative, provides… personal advice to the client in relation to the relevant product”.
The bill as drafted and tabled could result in general advice providers being deemed ineligible for the exemption, which could pose an existential threat to large swathes of the broader financial services industry such as call-centre salespeople employed or authorised by life insurers and general insurance brokers, of which there are at least 5000 in Australia.
Life and general insurers and their government relations advisers were blindsided by the provisions, which run counter to the communications from Minister for Financial Services Stephen Jones on life and general insurance commissions throughout the now 18-month QAR reform process.
In a statement to Professional Planner, the minister admitted the mistake and pledged to rectify it with haste. “Stakeholders have helped to identify a concern that the drafting of the bill before Parliament does not meet the government’s full policy intent,” Jones said.
“These unintended consequences will be addressed so that the law reflects the government’s position. We will seek to resolve this as soon as possible in line with our priority to deliver the government’s comprehensive financial advice reform package.”
Jones confirmed the government’s intention was to maintain current exemptions for life, general and consumer credit insurance commissions, albeit with a new requirement for personal financial advice providers to obtain consent from clients, as suggested by Levy via Recommendations 13.7, 13.8 and 13.9 in the QAR final report.
Death by committee
Jones gave no indication of the method or tactic by which he will seek to fix the error, but given the bill has already been tabled, stakeholders with knowledge of the legislative process were concerned there would be an inevitable delay.
One option open to the government would be to proceed to hearings in the Senate Economics Legislation Committee as though the mistake was never made. This approach to amendment might save face for the government ahead of a federal election, but could result in possibly significant delays to the QAR implementation process and divert Treasury’s resources away from the more complicated and controversial second and third tranches of the legislative package, which include provisions to ease the regulatory burden for super funds, banks and insurers to provide more personal advice to consumers.
“This is a total cock-up,” said one irate industry stakeholder, speaking to Professional Planner on condition of anonymity. “This process has already been too slow and now there are more problems with the bill.”
Slow wins
The discovery of the insurance commissions mistake is the latest in a string of faux pas during the legislative process to implement so-called Stream One of the QAR reform, which was supposed to feature the simplest of the Levy recommendations and represent some “quick wins”, according to the minister.
Professional Planner reported shortcomings with the legislation tabled in Parliament before Easter that left the burden on super funds to make sure advice meets specific conditions before fees can be charged to a member’s account, effectively disincentivising funds from allowing advice to be charged.
When the long-anticipated legislation was released in draft form last November, it left a glaring hole over any mandate to standardise fee consent forms, although ministerial discretion was added when the bill was tabled.
Most embarrassing for Jones was the introduction of the term “qualified advisers” to refer to unqualified advisers who do not meet the professional standards set by the previous government and are employed or authorised to provide “simple advice” (i.e. product recommendations) by financial institutions.
The “qualified adviser” moniker was widely criticised, even mocked, by a wide range of stakeholders, despite the minister indicating the name was unlikely to stick.
While an editorial in this publication has also praised Jones for attempting advice reform in the face of immense challenge (including from within his own party), the implementation has also been accused of being inept by the opposition and some industry stakeholders.
Challenged on the urgency (or lack thereof) with which he has approached the QAR reforms, Jones said in November he has largely stuck to his preferred reform timeline, but acknowledged criticism of the pace of change.
“We are on track and we are on time,” Jones said at the Financial Advice Association National Congress in Adelaide last November. “I want to stress that. All the things we’ve been saying this year and the timeline we set out, we are on track and we are on time.”
Notwithstanding the delays, Prime Minister Anthony Albanese committed to some form of financial advice regulatory reform in an exclusive interview with Professional Planner in August last year, while the opposition has committed to implementing the QAR recommendations in full.
