Increasing the number of qualified advisers is a priority

In an address to the Association of Superannuation Funds of Australia on 13 June, Assistant Treasurer and Minister for Financial Services Stephen Jones identified increasing the pool of qualified advisors as a key priority for the government.  To this end, he said that the government plans to introduce legislation into parliament 'this week' (13-16 June 2023 sitting week) to:

'follow through on the government’s election commitment to create a pathway for experienced advisers with a clean record to continue practising without the need to undertake further education'.

Consultation on a proposed experience pathway for financial advisers closed on 3 May 2023.  Broadly, the proposed changes would mean that an adviser (who does not currently meet the required education requirements) would be deemed to have done so if they:

• have 10 years (cumulative) experience providing advice between 1 January 2007 and 31 December 2021; and
• have not had any disciplinary action recorded against them on the Financial Advisers Register before 31 December 2021; and
• pass the exam.

Mr Jones said that this would 'soften the landing as the sector transitions towards a fully professional industry' while also not compromising standards.

[Note: The Bill - Treasury Laws Amendment (2023 Measures No. 3) Bill 2023 – was introduced into the House of Representatives on 14 June 2023.] 

Initial response to the Quality of Advice Review 

Mr Jones said that in responding to the Quality of Advice Review, the government has sought to prioritise the most 'urgent' areas for reform over those that are 'important' (but less urgent).  In doing so, he said, the government hopes to be able to move quickly on the most urgent issues, without having to reach agreement on 'everything else'.

With this in mind, Mr Jones said that the government has agreed to adopt 14 of the 22 review recommendations in full or in principle.  On the remaining recommendations, Mr Jones made clear that the government 

'is not ruling out any recommendations and will finalise our position on the remaining recommendations before the end of the year'.

The government plans to progress implementation of these recommendations through three work streams outlined briefly below.  

Stream One – 'Removing red tape' 

The first work stream will focus on making the process of giving advice simpler and more efficient to address the unintended consequences – eg increased cost to consumers – of existing rules that require advisers to provide voluminous documentation to consumers.  

This is planned to include: 

• Replacing 'unwieldy statements of advice with something that is fit for purpose'.  The government's written response to the review states that statements of advice are to be 'replaced with an advice record that is more fit-for-purpose, with consultation to determine the final design of the replacement'.  The government's written response to the QAR also flags plans to introduce 'more flexibility…in how financial service guide requirements can be met'. 

Replacing existing prescription with a more flexible statement of advice model has the potential to significantly reduce the cost of providing advice. However, it can be beneficial for consumers to have access to a record of the advice they are given. In our view, at a minimum, clients should be notified that they can obtain a copy, and be provided with one, regardless of whether they request it. 

• Streamlining existing consent requirements to 'remove uncertainty and unnecessary paperwork'.  The government's written response states that ongoing fee renewal and consent requirements will 'be streamlined into a single form, and the requirement to provide a fee disclosure statement will be removed' 

These reforms should have a significant positive impact in terms of reduction in costs, without causing any notable detriment to consumers, especially if the law is crafted to allow greater flexibility (and less prescription) in designing the approved form.

• Removing 'legalistic safe harbour steps so that advisers focus on the outcomes for consumers'.  The government's written response states that the government proposes to remove the Safe Harbour steps from the Best Interest Duty.  The government plans to consult on the details around how this should be implemented (and also to consult on the 'implications of adopting the remaining parts of recommendation 5).  For context, recommendation 5 recommended that:

'The existing best interests duty and related obligations (the duty to give appropriate advice assuming the best interests duty is satisfied, the duty to warn the client if the advice is based on inadequate or insufficient information and the duty of priority if there is a conflict) should be replaced with a new statutory best interests duty. The new best interests duty would be a true fiduciary duty that reflects the general law and will not include a safe harbour. This duty will apply only to financial advisers (relevant providers)'.

The Safe Harbour did have the benefit of providing certainty about the steps required to satisfy the Best Interest Duty.  It will be crucial for ASIC to provide good and practical guidance about how to comply with the duty once this change is made and it will be important for planners and licensees to review their compliance systems designed to address the Safe Harbour requirements.  

• 'Clarifying the rules on conflicted remuneration and improving transparency where advisers receive commissions on products'.  On this point, the government's written response flags plans to: 
  • introduce 'standardised consumer consent requirements' to 'classify a consumer as a wholesale or sophisticated client' 
  • introduce 'standardised consumer consent requirements…for life, general and consumer credit insurance commissions'
  • simplify or remove 'certain exemptions to the ban on conflicted remuneration' including: 
    • 'clarifying that monetary or non-monetary benefits given by a client are not conflicted remuneration along with the removal of consequential exceptions (accept recommendations 13.1 and 13.3); 
    • removing an exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months (accept recommendation 13.4); and 
    • removing an exception to conflicted remuneration rules for agents or employees of Australian Authorised Deposit-Taking Institutions

Stream Two – Expanding access to retirement income advice

Mr Jones characterised expanding access to retirement income advice through superannuation funds as 'the most significant burning deck in the financial advice space' given the number of Australians nearing retirement age and existing barriers to accessing advice.

Mr Jones confirmed that the government will adopt the review's recommendation for superannuation funds to 'expand their provision of advice' (recommendation 6).  According to the government's written response to the review, this will include amending existing restrictions on collective charging to allow superannuation funds to provide 'more retirement advice and information' to their members'.  

Recommendation 6 of the QAR recommended that:

'Superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement. In doing so, trustees will be required to take into account the member’s personal circumstances, including their family situation and social security entitlements if that is relevant to the advice.  Superannuation fund trustees should have the power to decide how to charge members for personal advice they provide to members and the restrictions on collective charging of fees should be removed'.

Mr Jones said that the government plans to 'work with industry' to finalise details around this 'in coming weeks' including settling: 

• the scope of advice that funds will be able to provide, 
• the education standards that fund employees/representatives will need to meet in order to provide advice; and
• how those providing advice will be held 'to an appropriate duty'.

We think there is scope to further enhance the role played by superannuation in the provision of advice to consumers.  For example:

• creating some capacity to provide advice on a person's overall financial position rather than having to limit the advice by reference to the sole purpose test;
• reforming the anti-hawking regime to ensure that it does not create an impediment to superannuation trustees who wish to proactively contact their members to alert them to options that may be beneficial to them;
• removing the ban on payment of ongoing advice fees from MySuper accounts, to eliminate the perverse incentive this creates for an adviser to recommend a member switch out of the MySuper option.

Stream Three – Expanding advice channels 

Mr Jones said that while Treasury is working on implementing the recommendations for superannuation funds to provide more advice it will also 

'explore with industry what would be required to tailor the model for other institutions'.

Mr Jones said that of the three workstreams outlined, he regards the potential for banks/insurers to provide more information/advice to consumers as the least urgent of the potential areas for reform observing that: 

'I’m not compelled that the model that has been proposed in the review is fit‑for‑purpose for these other sectors as is, even where there is a need…But I’m not ruling it out'.

The government's written response flags that the consultation with industry on these potential reforms is also planned to include consideration of how the following recommendations 'might operate under different advice models, including digital advice models, and across sectors':

• Introduction of a 'good advice' duty to replace the existing best interests duty (recommendation 4)
• Broadening the definition of personal advice (recommendation 1)
• Removal of the general advice warning (recommendation 2)
• Allowing non-relevant providers to provide personal advice (recommendation 3)
• Amending the Design and Distribution Obligations (recommendations 12.1 and 12.2)
• 'Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections'.

In terms of timing, the government's response document states that the government plans to issue its 'final response on the Delivering Better Financial Outcomes package later in 2023'.

Cautious welcome 

• The Financial Services Council has welcomed the government's response and in particular, the priority being accorded to 'stream one' reforms which focus on eliminating 'costly red tape'.  The FSC has also welcomed the planned further consultation with industry on the other work streams, and has urged the government to ' remain open to applying the Quality of Advice Review recommendations beyond the superannuation sector'.
• Consumer group Super Consumers Australia is also cautiously optimistic.  Xavier O’Halloran, Director of Super Consumers Australia stated:

'We welcome the Government’s considered approach to meeting the needs of Australians planning for retirement.  The careful path forward recognises the risk of harm from super funds dressing up product selling and retention strategies as 'retirement advice'.  We look forward to engaging with the process to define what and how retirement advice and information can be provided by super funds'.  

[Source: Assistant Treasurer and Minister for Financial Services Stephen Jones Address to the Association of Superannuation Funds of Australia 13/06/2023]