Overview 

On 7 December 2023, the government released its 'final response' to the Quality of Advice Review briefly outlining its proposed approach to implementing outstanding Review Recommendations 3, 4, 5, 6 and 9.

This supplements the government's initial response to the Quality of Advice Review, and builds on the 'first tranche' of reforms included in the draft Bill - [exposure draft] Treasury Laws Amendment (2024 Measures No. 1) Bill 2024: Quality of Advice Tranche 1 (summarised) – on which the government recently consulted.

Here's our summary.

Cutting red tape: Removing 'Safe Harbour' steps and replacing SOAs

In the interests of making advice more affordable (and therefore more accessible) the government has confirmed plans to both:

• 'Modernise the best interests duty' including removing the 'safe harbour steps' (responding to Quality of Advice Recommendations 4 and 5)
• Replace Statements of Advice (SOAs) with a simpler, Plain English 'advice record' (responding to Quality of Advice Recommendation 9)

A 'modernised' best interests duty

As yet, detail around what this will look like is limited.

The government's final response states that:

• 'The existing primary obligation to act in the best interests of the client and to prioritise the interests of the client in the event of a conflict will remain at the core of the renewed standard. 
• The updated standard will provide clearer legislative support for scaled or limited scope advice where this meets the client’s objectives and needs, and for advice where the advice provider has limited, but relevant, information.
• As announced in June 2023, the existing best interests duty “safe harbour” steps will be removed. 
• The requirement to provide appropriate advice will be retained, ensuring that all advice is appropriate to the client and fit-for-purpose for their circumstances.
• The existing concessional treatment for personal advice provided by banks and general insurers on defined basic products will be maintained'.

It seems therefore that the government does not fully support the Quality of Advice Review recommendation for a 'good advice' duty.  While the government seems to adopt the fit for purpose proposal to provide additional comfort about the ability to provide limited advice, it is not proposing to change the fundamental best interests duty other than to remove the safe harbour.

Replacing Statements of Advice (SOAs) with a simpler, 'principles-based advice record'.  

It's proposed that the requirement to provide an SOA would be replaced with a new requirement to provide clients with a simpler 'advice record'.  It's envisaged that, unlike the process-driven 'unreadable and unhelpful' SOAs, the new record of advice would be: 

'clear, concise and effective and actually help the client make an informed decision about the advice they have received'.

It is worth noting that SOAs are currently required to be clear, concise and effective so it will be interesting to see how the government will achieve this for the advice record.

It's proposed that the new 'advice record' would need to 'address' the following four principles:

• 'subject matter/scope
• the advice [eg product recommendations and strategies]
• reasons for the advice [eg information about the client that the adviser considered]
• the cost of advice to the client and/or benefits received by the adviser'

These content requirements are very different to the current SOA requirements.

On the first point, Assistant Treasurer Stephen Jones has flagged that the government intends to 

'clarify that advice can cover only one or a few topics where this meets the client’s objectives and needs.  And that advice can be based on relevant information without the need to complete an exhaustive fact-find in every situation'.   

This presumably follows from the changes to the advice duty to facilitate scaled or limited scope advice.

The government also proposes to update existing record-keeping obligations to

'ensure key information that informs the advice is appropriately recorded, without burdening the advice record with information that makes it harder for the client to understand and make an informed decision about the advice'.

While these goals are laudable, the challenge will be to achieve them.  Perhaps a page limit should be considered?

Create a 'new class of financial advisers' to provide 'simple financial advice'

It's also proposed that a 'new class' of financial advisers - 'qualified advisers' - would be created to 'fill the advice gap by advising on less complex matters'.  

It's envisioned that this new cohort of 'qualified advisers' would: 

• provide 'simple financial advice' only 
• 'generally be employees of licensed financial institutions' with the licensee 'wholly responsible for the advice provided by their employees with new obligations on the licensee' 
• be subject to the new 'modernised best interests duty'
• be required to meet an as yet-to-be determined 'government-mandated education standard'.  On this point Mr Jones stated that:

'The exact level of education will be determined in time, but a minimum standard of a diploma may be the right balance to be less onerous than the requirements for professional advisers'.

The Assistant Treasurer has also flagged a potential role for 'qualified advisers' in providing 'support' to customers accessing digital advice which would in turn, enable institutions including superannuation funds, to embed emerging digital advice technologies into their advice services.

The challenge of course will be to determine what is 'simple advice'.  It will be interesting to see if the government takes a prescriptive or principles-based approach to this and what the role will be for ASIC to provide clarity and certainty in this area.

These proposed changes would implement the government's response to Quality of Advice Review Recommendation 3.  

Superannuation-specific changes 

In light of the 'unique obligations on superannuation funds and the need to drive engagement with members' the government also proposes to both:

1. Clarify the topics on which superannuation funds can charge for advice: The government proposes to 'legislate' a 'broad' list of advice topics on which it is appropriate for members' superannuation to be charged – it's proposed that the same list of advice topics will apply to collectively charged advice, and advice that is charged direct to the individual member’s superannuation account.

This list is proposed to include: 

• investment decisions eg 'the appropriate investment options within a fund and contributions strategies'
• delivering retirement income eg 'retirement projections, a drawdown strategy and recommendations about retirement products'.

It's also proposed that funds will be able to consider broader circumstances for both the member and their household' including 'their debt and assets, their partner’s situation, and eligibility for the Age Pension and other government support'.

The proposal to allow consideration of broader circumstances is welcome.  Hopefully when the list is released, it will address the difficulty currently faced by superannuation trustees in determining when advice can be paid for from the fund.  As we have suggested in our submission on the draft Bill to implement the 'first tranche' of the advice reforms, rather than focusing on the topic of advice which creates artificial distinctions between superannuation and non-superannuation advice,  we think it would be better and far simpler to administer, to impose a limit on the amount that can be charged to a member's account for advice, e.g. a dollar or a percentage limit per year.

2. Create a 'specific permission within the current general advice framework to allow superannuation funds to prompt or "nudge" members' to enable funds to be 'proactive and encourage members to think about their financial situation.  And to seek advice at important decision-points that they might otherwise have missed' (eg prompting members approaching retirement to consider options for how they may wish to drawdown on their super).  It's envisioned that as a result of the proposed reform: 

'millions of members will receive helpful messages with relevant and timely information…Which could lead to millions of members seeking and receiving advice that, today, they do not receive'.

We hope that in implementing this (proposed) reform the government modifies the anti hawking laws to allow trustees to reach out to their members in the accumulation stage to inform them about retirement income products offered by the fund.

This proposed change would implement the government's response to Quality of Advice Review Recommendation 6.  

Outlook and timing

As yet, detail around the proposed reforms is limited - no draft legislation has been released for consultation, or introduced into Parliament.  

In terms of timing, the government has signalled plans to consult 'over the coming months on the design of the draft legislation' to implement it's proposed reforms with a view to having a final Bill introduced into Parliament 'before the end of 2024, pending other government priorities'.