The financial advice changes that could save you money
The federal government will scrap a load of administrative burdens and give superannuation funds a larger role in making financial advice more affordable as it announces which out of the 22 Quality of Advice Review recommendations will become a reality for the wealth management sector.
Minister for financial services Stephen Jones today unveiled a number of reforms that aim to remove the red tape that is restricting Australians from accessing financial advice. Jones has accepted many of QAR chair Michelle Levy's recommendations either fully or in principle.
Eliminating many bugbears for financial advisers, the Safe Harbour Steps will be removed from the Best Interest Duty. Consultations remain so as to determine the implementation details and the implications of adopting the remaining parts of Recommendation 5, Jones said.
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, as per Recommendation 8.
Statements of Advice (SoAs) will be replaced with an advice record that is more fit-for-purpose, with consultation to determine the final design of the replacement, accepted in principle as part of Recommendation 9.
Jones promises there will be more flexibility to how Financial Service Guides (FSGs) will be provided (Recommendation 10), while standardised consumer consent requirements will be introduced to classify a consumer as a wholesale or sophisticated client (accepted in principle as per Recommendation 11).
More details about the replacement SoA and the Financial Adviser Code of Ethics will be released in due course.
As for conflicted remuneration, Jones accepted many components of Recommendation 13, whereby some exemptions to the ban on conflicted remuneration will either be simplified or removed.
Jones said "clarifying that monetary or non-monetary benefits given by a client are not conflicted remuneration along with the removal of consequential exceptions", in accepting Recommendations 13.1 and 13.3.
Under Recommendation 13.4, the exception to conflicted remuneration rules when issuing financial products where advice has not been provided in the previous 12 month is to be removed. The exception to conflicted remuneration rules for agents or employees of Australian Authorised Deposit-Taking Institutions (Recommendation 13.5) will also be removed.
Life, general and consumer credit insurance commissions (Recommendations 13.7 - 13.9) will have to provide standardised consumer consent requirements.
Jones will defer the review of time-sharing schemes (Recommendation 13.6), until Treasury's review into the regulatory framework for managed investment schemes.
A boon for super funds
Superannuation funds will be given more leeway to provide retirement advice and information to their members, as accepted in principle as part of Recommendation 6.
Levy said 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," she said.
"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)."
Jones said trustees will be provided with legal clarity around current practices for the payment of adviser service fees (accepted in principle Recommendation 7).
Further to making advice more accessible, Jones will broaden the definition of personal advice (Recommendation 1) and remove the general advice warning (Recommendation 2).
Non-relevant providers will be able to provide personal advice (Recommendation 3) and the Good Advice Duty will be implemented.
Under Recommendation 4, the Good Advice Duty applies to all relevant providers (qualified advisers) who provide personal advice and Non-Relevant Providers such as advice firms or financial institutions.
Design and Distribution Obligations (Recommendations 12.1 and 12.2) will be reworked to "limit the exception to the requirement to take reasonable steps to ensure the distribution of a financial product is consistent with its target market to personal advice provided by relevant providers."
When personal advice is provided by non-relevant providers, the AFSLs will be required to comply with the distribution obligations and take reasonable steps to ensure the financial product is only recommended in accordance with the target market determination.
"Government consultation will test how these proposals might operate under different advice models, including digital advice models, and across sectors. Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections," Jones said.
"The government will issue its final response on the Delivering Better Financial Outcomes package later in 2023."
No going back
In adopting the bulk of the recommendations immediately, Jones flagged that the government will legislate in the second half of 2023 and early 2024.
"Of the 22 recommendations, the government will adopt 14 recommendations in full or in principle today. We are also not ruling out any recommendations and will finalise our position on the remaining recommendations before the end of the year," he said.
"We will progress the implementation of these recommendations through three streams of work."
The first stream comprises removing the Safe Harbour Steps and cumbersome paperwork - with Jones saying that fixing financial advice and helping five million Australians, at or approaching retirement, gain access to more retirement income advice - require the highest urgency.
"Over the past decade or so, the financial advice sector has undergone significant change. In response to, sadly, bad practice in the sector, financial advice has become heavily regulated over this time period," he said.
"These reforms often targeted a specific part of the problem. Conflicts of interest. Poorly qualified advisers. And a culture of salesmanship instead of a fiduciary relationship. We aren't going back to those bad days."
More than 10,000 advisers have left the industry since 2019. As at May 10, there were 15,993 practising advisers.
"The Quality of Advice review found that the median ongoing advice fee has increased by 41% between 2018 and 2021. So, while the reforms have been effective in protecting Australians from bad advice, it has also shielded them from helpful advice," he said.
"It would be bad enough if Australians simply got no advice."
Stream Two expands super fund access to retirement income advice.
"In the coming weeks, Treasury will work with industry to finalise the details for how these recommendations can be effectively implemented," he said.
Issues to consider include the scope of advice allowable for a fund; education standards required for an employee or representative; and holding representatives to an appropriate duty.
Stream Three will examine the role for other institutions such as banks and insurers.
"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," he said.
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