The federal government plans to increase the number of financial advisers in Australia and make financial advice more affordable, so that Australians can avoid relying on financial advice from unaccredited sources.
In an effort to reduce the climbing costs of obtaining financial advice and to increase the availability of qualified financial advisers, the federal government is planning to develop legislation over the next year to implement a number of significant recommendations made in the Quality of Advice Review, the final report of which was released in February 2023. The government has accepted 14 of the review’s 22 total recommendations either in full or in-principle.
The report found that the existing regulatory framework for the provision of financial advice has created a serious impediment to a typical consumer’s ability to access both affordable financial advice and high quality financial advice. Twenty-two key recommendations are made in the report that, if implemented, could address the affordability and availability of financial advice in Australia.
The current framework surrounding the provision of financial advice has been assembled over a relatively short period of time, often formed as a reaction to bad actors taking advantage of consumers. The framework does not allow flexibility and often creates barriers for institutions to provide personal financial advice to their customers. To compound the problem, there are currently only about 16,000 financial advisers in Australia, far too few to provide meaningful and affordable financial advice to millions of potential consumers. The Quality of Advice Review recommends that the government remedy serious issues regarding affordability and availability of financial advice by allowing financial institutions such as banks, superannuation funds, insurers and wealth managers to provide financial advice to their customers.
Of course, the challenge is structuring an effective framework that allows financial institutions to give advice in a way which is safe and serves the interests of their customers, while mandating that conduct of financial advisers within those institutions is efficient, honest and fair. By setting high standards for the content and merit of the advice, as opposed to restricting bad actors, the recommendations rely upon Australia’s consumer protection regulations to restrict the conduct of the financial advice providers with respect to the suitability of recommended financial products, conflicted remuneration for investment products, superannuation funds acting in the best interests of their members, and the unsolicited hawking of financial products.
The government plans to implement its planned changes in a three-phase approach.
In the initial phase, the government aims to remove regulatory red tape that adds to the cost of advice without benefiting consumers to streamline access to financial advice through existing channels. Generally, the implementation of Phase 1 involves the following accepted recommendations:
- Eliminating the “safe harbour" checklist that advisers have to follow in order to comply with the Best Interest Duty.
- Streamlining ongoing fee arrangements and consent requirements into a single ‘consent form’ renewable on an annual basis and removing the requirement to provide a fee disclosure statement.
- Replacing the requirement to provide a statement of advice with requirements to maintain complete records of advice provided and to provide written advice upon request.
- Increasing flexibility in meeting financial service guide requirements.
- Introducing standardised consumer consent requirements to classify a consumer as a wholesale or sophisticated client.
- Simplifying or removing some exemptions to the ban on conflicted remuneration.
- Introducing standardised consumer consent requirements for commissions in connection with the issue or sale of life insurance products, general insurance products and consumer credit insurance products.
In the second phase, the government plans to lift constraints which prevent super funds from offering tailored financial advice to assist their members in developing successful retirement income strategies and clarify how super funds may charge for advice. Generally, the implementation of Phase 2 involves the following accepted recommendations:
- Amending the restrictions on collective charging to allow superfunds to provide personal retirement advice and information to their members.
- Introducing legal clarity on the ability of super funds to pay financial adviser service fees from a member’s account.
The third, and perhaps least critical, phase of the government's plan addresses the role of other institutions such as banks and insurers, in providing financial advice. The implementation of Phase 2 with respect to super funds is likely to help guide and tailor the model for Phase 3 with respect to banks and insurers. Generally, the implementation of Phase 3 involves the following accepted recommendations:
- Broadening the definition of personal advice.
- Removing the general advice warning.
- Allowing non-relevant providers to provide personal advice in specified circumstances.
- Introducing a definition for ‘good advice’ and making providing good advice a duty applicable to the financial adviser.
- Amending certain aspects of the Design and Distribution Obligations.
The recommendations presented in the Quality of Advice Review represent a very early stage of the planning process. The government has yet to complete its consultation, perform any modeling of how the recommendations might operate in practice, consider potential hurdles to implementation, or deliberate on the policy construction. Further information will be available later in the year when the government issues its final response on the Delivering Better Financial Outcomes package. For now, it’s a matter of ‘watching this space’.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.