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Financial advice to undergo massive reform with red tape slashed and super funds in play
The process of receiving financial advice is set to undergo drastic change after the government announced its long-awaited response to the Quality of Advice Review proposals laid out by review lead Michelle Levy back in December.
In a statement released Monday morning financial services minister Stephen Jones announced a three stage plan for reform; removing red tape, expanding access to retirement income advice, and “exploring new channels for advice”.
The government will pick the lowest hanging fruit in the first stage by consolidating fee consent forms, removing the safe harbour steps from the Best Interest Duty and, crucially, abandoning statements of advice in favour of more concise financial advice records.
Wholesale or ‘sophisticated’ advice providers will also be subject to greater consent disclosure requirements in the first tranche of changes.
Stream two will see superannuation funds be given more freedom in how they collectively charge members for intra-fund advice, effectively opening the door for trustees to provide advice in a broader suite of circumstances. Here, Jones explained how the existing guardrails for trustees and proximity to retirees make them best placed to expand the suite of advice providers.
“Superannuation funds are well‑suited to providing safe and quality advice to members as they are already expected to meet obligations to act within the best financial interest of their members,” Jones stated. “This will also help funds meet expectations under the new Retirement Income Covenant and elevate their standards of customer service to members.”
The third stream will involve further consultation on how other business models, including banks and insurance companies, will fit into the advice spectrum. As part of the “cautious approach” taken by the government, advice review leader Michelle Levy’s plan to allow these institutions to provide personal advice under the umbrella of a ‘good advice’ provision is on hold for now, with the government likely to gauge the effectiveness of the first two reform stages before assessing more drastic change.
While the government confirmed that insurance advice commissions will be retained, the new Council of Australian Life Insurers advocated for their members to be able to provide limited advice directly when requested.
A positive step
Otherwise, the government’s response was welcomed by most industry groups. Financial Advice Association of Australia chief executive Sarah Abood called it a “sensible package”, while the Self-managed Superannuation Funds Association called the reforms a “positive step”.
Financial Services Council (FSC) head Blake Briggs said it was “right to prioritise” cutting red tape at the front end of the package. Sticking true to its product provider base, however, the FSC lamented the government’s reluctance to expand the banks’ role in advice – at least, yet – could be a mistake.
“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,” Briggs stated, “which could result in too many Australians missing out on quality financial advice at key stages of life.”
