More detail needed as consultation on Delivering Better Financial Outcomes tranche two gathers pace.

Industry leaders are worried the Delivering Better Financial Outcomes Tranche 2A draft legislation will lead to fewer people accessing financial advice. There are concerns the legislation will increase red tape for advisers already drowning in admin.

The federal government’s initial Delivering Better Financial Outcomes reform package passed Parliament in 2024. An exposure draft legislation covering part of the second tranche of the legislation has been released for consultation.

In the second tranche, the Statement of Advice (SOA) is replaced by a new Client Advice Record (CAR). The draft simplifies advice processes and documentation, permits targeted superannuation prompts to be sent to members by trustees and aims to clarify rules on what topics can be collectively charged for through superannuation. However, there are many details to be resolved. However, there are many details to be resolved.

“The current draft has raised concerns in the industry as it may not achieve the federal government’s stated policy intent, requiring further examination during the consultation period,” says Financial Services Council CEO, Blake Briggs.

Aspects of the reforms yet to be drafted include removing the safe harbour steps and introducing a new class of adviser that can provide simple, episodic advice to clients.

“We expect the introduction of the new class of provider would, if implemented as expected, have limited impact on the operations of financial advice practices, so long as the new class of adviser is not able to provide retirement advice,” says Financial Advice Association of Australia (FAAA) CEO, Sarah Abood.

“The type of advice provided by this new class is proposed to be simple advice and the people seeking this advice are probably less likely to seek financial advice from a professional financial adviser,” she adds.

Abood says the FAAA is worried about retirement advice being provided by super funds under a collective charging model.

“Retirement advice is important and complex and is better provided by fully qualified financial advisers and paid for by the person seeking and benefiting from the advice,” she says.

Abood says clients should not have to contribute to the cost of other fund members’ advice on top of their own costs of advice. This also lowers the perceived value of advice and might mean fewer people end up seeking advice.

According to the FSC’s numbers, layers of red tape and onerous regulation mean financial advice now costs more than $5,000 in some cases, putting it out of reach for millions of Australians. This cost has been exacerbated by the declining supply of financial advisers, dropping from 28,000 licensed advisers in 2018 to fewer than 15,600 licenses advisers now. Red tape also places a huge time and cost burden on financial advisers.

“These changes, including the introduction of the new class of adviser, have the potential to bridge the advice gap, allowing more Australians to get access to the financial advice and guidance they need. The flexibility to charge one-off fees for advice, in addition to collective charging, also supports competitive neutrality and choice for consumers,” says Briggs.

Given the interdependency of these reforms, the advice sector is eager to see the full suite of proposed changes to assess their impact. The release of only part of tranche two as draft legislation has raised some questions as to the intended scope of the changes, which should be clarified through consultation.

“The devil’s in the detail with the proposed Client Advice Record. While it’s meant to simplify things compared to the old 80-page Statements of Advice, clients still face the same upfront hurdles. You design a strategy, agree on fees, but then hit them with a separate invoice just to implement it, which is a capital outlay that’s not tax-deductible. Clients pay before work starts,” says Wayne Leggett, director, Paramount Financial Solutions.

Clients paying for the SoA upfront is not industry-wide practice, but is a way of advisers receiving some payment prior to completing substantial work.

An important issue to be worked through is ensuring the advice provided by a product issuer that can be collectively charged to superannuation consumers is appropriately ringfenced.

“It’s understood it is not the federal government’s intent to allow superannuation trustees to collectively charge for comprehensive retirement advice. The collective charging list should not be viewed as the list of topics on which the proposed new category of advisers can provide advice,” says Briggs. “The FSC welcomes this clarification, as it responds to concerns shared by both the FSC and financial advisers that the draft legislation may have been broader than intended. The industry will now work through the detail of the changes and respond to the consultation,” he says. FSC research has shown these reforms could reduce the cost of providing advice by 40 per cent, reducing the cost of advice for millions of Australians and simplifying red tape for the financial advice industry.

Implementation is tentatively set for July 2025, but delays are likely, with practical rollout expected closer to 2026.