Insurers and industry bodies have welcomed the government’s financial advice reform package which the government says will expand the supply of advice under a new model that will deliver simple advice at scale.
Both Zurich Financial Services Australia and TAL welcomed the announcement by Financial Services Minister Stephen Jones while CALI noted that Australian consumers “…are the big winners in a significant shake-up of financial advice laws that will allow life insurers to provide simple advice directly to their customers.”
The FSC says the Government’s policy commitment to abolish the safe harbour steps and simplify Statements of Advice “…are key to reducing the excessive regulatory cost burden on financial advice.”
However the FAAA felt the advice reforms could wind the clock back by five years (see FAAA Deeply Concerned on Latest Advice Reforms).
…under the new model there will be a new class of financial advisers who will fill the advice gap…
Jones outlined in a statement that under the new model “…there will be a new class of financial advisers who will fill the advice gap.”
He says this class will be required to meet education standards, be focused on providing advice on simple matters, and be prevented from charging a fee or a commission.
These changes will apply across all financial institutions, including superannuation funds, life and general insurers, and banks.
…The licensee will be wholly responsible for the advice provided…
“It is expected that this new class – to be termed ‘qualified advisers’ – will generally be employees of licensed financial institutions. The licensee will be wholly responsible for the advice provided.”
He added that importantly “…all advisers will be subject to the same standard under a modernised best interests duty. This will give consumers confidence in the advice they receive from the expanded, regulated advice environment.”
Jones says the new model will:
- Modernise the best interests duty to ensure customers receive helpful advice, including on single issue or limited scope issues, at a high standard
- Replace Statements of Advice with a record that is in plain English and provides helpful information to make an informed decision
- Introduce a new class of financial advisers who can provide advice on simple topics, while being subject to the modernised best interests duty
Legislation will be developed to implement the model in 2024.
Detail on Modernising Best Interests Duty
In his speech to Parliament Stephen Jones outlined in some detail how the Government will modernise the best interests duty.
“This will require advisers to continue to focus on what is best for their clients. It will maintain the requirement for advisers to give priority to their client’s interests where there may be a conflict. And it will retain the necessity for advice to be appropriate and fit-for-purpose.
“However, the safe harbour steps will be removed.”
Jones says the government will also 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 will enable advice to be relevant and helpful, while upholding quality standards.”
Replacing Statements of Advice
He noted that these changes will be complemented by replacing Statements of Advice “…with an advice record that provides clients with helpful information in plain English.”
…The record must be clear, concise and effective and actually help the client make an informed decision…
Jones says the principles that will form this new record are as follows:
The record must be clear, concise and effective and actually help the client make an informed decision about the advice they have received. It must address the following matters:
- The subject matter
- The advice – such as product recommendations and strategies
- The reasons for the advice – such as the information about the client that the adviser considered
- And the cost of the advice to the client and any benefits received by the adviser
He says the record-keeping obligations will also be updated 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.”
He sees it as a simpler approach that will deliver consumers information that is helpful. “Improving the value and quality of advice. While reducing its cost.”
Removal of Safe Harbour Steps
In welcoming the the Government’s comprehensive framework, CEO of the FSC Blake Briggs said its research has shown “…removing the safe harbour steps and simplifying disclosure has the potential to reduce the cost of providing financial advice by nearly 40%.”
CALI CEO Christine Cupitt noted these changes will ensure Australians have more choice and better access to affordable advice.
“Through qualified advisers, life insurers will be able to provide simple advice directly to their customers to give Australians peace of mind…”
TAL Group CEO and MD Brett Clark says the package sets out a positive reform agenda that will maintain strong consumer protections while delivering better outcomes for Australians.
Justin Delaney, CEO, Zurich Australia & New Zealand says the proposed package “…strikes an appropriate balance, prioritising consumer protections whilst also recognising significant unmet financial advice needs and a widening insurance protection gap.”
Good to see that old adage about snouts in the trough getting proved in practice, once again.
Of course the insurers think it’s a good idea, but they would, wouldn’t they?
Even the so-called impartial AFCA will love this, because you can bet London to a brick on that the number of life insurance complaints is going to increase rapidly when the insurers start issuing policies direct to consumers. More complaints, equals more AFCA staff.
There’s been no indication from Mr Jones whether any of the “qualified advisers” in either the insurers or the industry funds will be subject to the FASEA Code or any of the loads of compliance we real advisers have to face every day.
Just one example: say you have an old Comminsure (or similar) Income Care Plus policy and you can’t afford the premiums, and post-policy, you been subsequently diagnosed with serious illnesses, so you can’t go to a post 2021 policy. But you have lots of sick leave, and extending the waiting period while retaining your policy is one option. Along the way, your adviser has assisted you to extend your 30 day waiting period out to 90 days.
The insurer “suggests” directly to the policyholder over the phone that they could save money by extending the 90 day waiting period out to 180 days. Simples!
Except that exceeding the 90 day waiting period removes eligibility to claim under the Schedule Injury OR Crisis Events coverage which, may I remind some of the new folks, were paid in multiples of monthly benefits as a lump sum, AND TAX FREE. So our insured takes the “advice” of a 180 day waiting period, and subsequently has a heart attack, but, good news, is back at work in five months –HE GETS NOTHING !.
Hello AFCA, assuming of course AFCA has jurisdiction over the direct insurers and the industry funds. We await the legislation to find that out
Anyone who thinks the banks or the insurers will not be flogging rubbish life insurance products to the people they deal with directly, is not living on this earth. For example recently I came across a policy written some 10 years ago by St George, using a Westpac policy.
No underwriting, and the premium was no cheaper than anything retail. It was sold without advice and, as is to be expected, contained the usual pre-existing conditions exclusion upfront. Where the real problem came about is when the policy lapsed and was subsequently reinstated, then a fresh pre-existing condition exclusion applied for the next six months to anything that had occurred, or was thought to have occurred, in the LAST 24 months.
That’s what I predict our friendly shareholder-driven life insurers are going to throw at our clients, and Mr Jones thinks that’s a great idea.
But the really disappointing part is that how those ideologues over at CHOICE seem to have subjugated their long-standing hatred of insurers and commission-rewarded advisers. Has there been a change of philosophy with the departure of Mr Kirkman to ASIC?
The insurers will rape and pillage, that’s what they’ve always done when given a free kick in front of goal . But those backpackers who will be advising some of our clients over at the industry funds will be paid by incentives, a.k.a. “commission” ,but it won’t be called that. The funds will call it a salary, but it will be based on KPIs.
And all of this occurred on the watch of the FAAA, who apparently were not consulted, and if they were, lacked sufficient credibility to be taken seriously by Minister Jones. But, to be fair to the FAAA, it’s not in the position to donate to election funding like the banks, insurers and industry funds are.
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