In a policy statement focused mostly on removing confusing red tape for consumers, the Government has announced it will adopt 14 of the Quality of Advice Review’s 22 recommendations immediately – in full or in principle – with legislation to be introduced in the second half of 2023 and early 2024.
Among the 14 recommendations to be adopted include the replacement of Statements of Advice and the retention of risk commissions.
Speaking at an ASFA event this week, Financial Services Minister Stephen Jones said Government has yet to rule out any of Michelle Levy’s 22 recommendations and will finalise its position on the remaining recommendations before the end of the year.
He says the Government will progress the implementation of the 14 recommendations through three streams of work, with the first aiming to streamline the process of giving advice through current channels.
Stream One
According to the Minister’s statement, his Government will:
- Replace the “unwieldy” Statements of Advice with something that is fit-for-purpose
- Streamline “cumbersome” consent requirements to remove uncertainty and unnecessary paperwork
- Remove the legalistic safe harbour steps so that advisers focus on the outcomes for consumers
- Improve consumer protection by “…clarifying the rules on conflicted remuneration and improving transparency where advisers receive commissions on products”
Jones’ statement that the Government will clarify the rules around conflicted remuneration and improve transparency where advisers receive commissions on products appeared to act as an implicit confirmation the Government will adopt QoA Review recommendation 13.7, which recommended the retention of risk commissions. This was confirmed in a later release from Treasury, which provided more details around the adoption of the 14 recommendations (click here for the more detailed release).
Stream Two
Jones says the second stream of work focuses on what he refers to as the most significant burning deck in the financial advice space, namely retirement incomes.
He says superannuation funds must play an “…expanded and more effective role that serves the needs of their members. In fact, Government has already told them they need to do more.”
The Government will adopt the review’s recommendation for superannuation funds to expand their provision of advice
The Government will adopt the review’s recommendation for superannuation funds to expand their provision of advice and will also provide legal certainty for funds on how to collectively charge for advice.
Jones says super funds are well-suited to safely meeting the needs of their members. They are already governed by strong obligations to act in the best financial interests of members and act for the sole purpose of providing retirement benefits to members.
And further “…as a Government we have taken steps to strengthen super disclosures such as requiring super funds to report to ASIC in the same way as publicly listed corporations.”
The remaining recommendations form the model that it will use as a starting point.
Outstanding Questions
But, he says, there are some outstanding questions.
- What is the scope of advice that can be provided by a fund?
- What are the education standards needed for an employee or representative?
- And how do we hold them to an appropriate duty?
Jones says Government is “..open to tailoring that model as necessary based on feedback from industry and Treasury’s advice to make sure it leads to meaningful outcomes for members.”
In the coming weeks, Treasury will work with industry to finalise the details for how these recommendations can be effectively implemented.
Stream Three
Jones says the final stream will examine the role for other institutions – banks and insurers – in providing more information and advice.
…in terms of priority, I believe it is more urgent that we fix the problems for financial advisers…
But, he says “…in terms of priority, I believe it is more urgent that we fix the problems for financial advisers. And help the five million Australians at, or approaching retirement, get access to more retirement income advice.”
“I’m just not compelled that the same urgency exists in these other spaces. There is also a difference between the obligations that cover these institutions and superannuation funds.
“And so, 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.”
He says that 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.”
Sorting Between the Urgent and the Important
Jones explained that because of the breadth of the Review his approach “…is to sort between the urgent and the important.”
He says “…not everything is a burning deck. Which is not to say that we ignore the important. But we don’t want to hold up the urgent, while trying to agree on everything else.”
There are also some problems that have a ready made answer while others are tougher nuts to crack.
“And so, I think we can move quickly on the former, while working together to solve the latter,” Jones says.
Click here to read the Minister’s full speech.
Blah blah!
“But, he says, there are some outstanding questions.
What is the scope of advice that can be provided by a fund?
What are the education standards needed for an employee or representative?
And how do we hold them to an appropriate duty?”
This little matter is going to really test just how effective the FAAAA will be in representing its ADVISER members, and no one else.
IF, at the end of the day, those providing advice under the banner of the super fund are not required to hold the exactly the same qualifications and pass the same ethics tests as those of us on the FAR, and indeed are listed on the FAR, then the FAAA needs to pack their bags and go away.
AND THEN
The FAAA will need to have succeeded in strongly agitating for life risk commissions to be returned to at least 88/22 so that the life risk industry might retain a limited level of viability. To do that the F AAA will have to ignore the pleadings of some of the insurance institutions who provide it with direct and indirect funding, and for once the FAAA will be able to legitimately lobby for the retention of a viable life insurance industry, because without that viability “consumers” will be truly disadvantaged .
Your words resonate very well as usual Oldie. I take issue with just one thing you mention; 88/22. While certainly better than 60/20, if I was a new entrant considering becoming a risk adviser I wouldn’t consider it without at least a 100/20 these days.
While at least 100/10 was the norm for decades, with the onerous compliance now, hoop jumping and the constant threat and stress to my business of self-centered and detrimental changes from pollies, I would want at least 100/20 these days to make the stress worthwhile. Don’t even start me on 2 year responsibility periods!
But even then at 100/20, if I knew what I know now, as a new entrant, I would avoid this industry completely for the sole reason that after taking a decade++ to build a business we could never trust politicians not to destroy it within a year with vote-centric policies that eventually always lead to client and adviser detriment.
I’ll wager you one certain thing right now: without a return to 100/20 (or something very close to it) you will see the risk advice profession go away completely by 2026.
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