On December 3rd, Stephen Jones, Assistant Treasurer and Minister for Finance, surprised the industry by releasing a Media Release rather than the expected exposure draft legislation for Tranche 2 of the Delivering Better Financial Outcomes Reforms, based on the recommendations from the Quality of Advice Report. At the same time Treasury also released a Fact Sheet reiterating the key points made by the Minister.
FINSIA has always been supportive of the intent of these reforms, which is to make financial advice more affordable and accessible to more Australians. We continue to be broadly supportive of the guiding principles outlined in the Fact Sheet, however we note how critical the detail around the reforms will be.
The Fact Sheet outlined what reforms will be included in Tranche 2 including:
- Introduction of a New Class of Adviser
- Modernisation of the Best Interests Duty
- Simplification of advice documentation
- Further clarification around the payment of advice fees from super funds
- Allowing super funds to send ‘nudges’ to improve member engagement
- Update to the Adviser Code of Ethics
The Introduction of a New Class of Adviser
The Tranche 2 reforms will introduce a New Class of Adviser (NCA). It is worth noting NCA is a working name only and it is expected the final name will be announced soon. We are in favour of the final name providing consumers with a clear distinction between this restricted class of advisers and fully qualified financial professionals.
It is proposed that NCAs will need to complete relevant education at AQF Level 5, which is equivalent to a Diploma. While the government confirmed this education standard will serve as an additional entry point for financial advisers, FINSIA would like to see these education standards contribute to the education requirements for a fully qualified adviser. This will better assist in improving future adviser numbers.
In addition to super funds and insurance companies, Licensees will also be able to employ this new class of adviser. When employed by a Licensee the NCA will be able to provide advice to existing clients, or new clients who initiate a request for advice. The Licensee will be able to charge a one off fee for the advice but will not be able to charge ongoing fees or receive commissions.
The Licensee will be responsible for the advice provided by the NCA, meaning there will be additional monitoring and supervision requirements to ensure the advice is appropriate and within the NCA’s authorisation.
NCAs will only be able to provide simple advice. They would not be able to provide advice on complex or high-risk areas, such as establishing a SMSF. Furthermore, NCAs will only be able to advise on products issued by prudentially regulated entities. For example, they will be able to provide advice on super or insurance products but would not be able to advise on Managed Investment Schemes or SMSFs. A blacklist of products that NCAs will be prohibited from providing advice on will be developed to provide more clarity and create a clear boundary between NCAs and professional financial planners.
Modernising the Best Interests Duty
The Best Interests Duty will be modernised. This will include legal clarity to allow the provision of limited scope or single-issue advice if that meets a client’s needs. The steps of the safe harbour will also be removed from the Best Interests Duty.
Simplifying Advice Documentation
Statements of Advice will be reformed. They will be replaced with a principles-based record that is delivered in plain English and addresses the client’s needs.
FINSIA continues to advocate for the reforms to include a variety of delivery mediums, (not just paper based) to ensure that clients receive their advice in a medium that helps them to make an informed decision.
Clarity on Paying for Advice in Super
The reforms will provide greater clarity on what advice topics will be able to be paid from super. There will also be greater clarity on the member circumstances that can be considered to support more access to financial advice.
Super Fund ‘Nudges’
To improve member engagement, super funds will be able to issue ‘nudges’ to members as they reach certain key life milestones, such as approaching retirement. Although the Retirement Income Covenant already requires super funds to do this, the reforms will provide greater certainty on the legality of them doing so.
The Code of Ethics
The Fact Sheet also confirmed the Financial Planners and Advisers Code of Ethics will be updated to ensure it aligns with the new regulatory framework.
While the recent announcements provide an outline of future reforms, the details behind it are what truly matters. The exposure draft legislation is still being developed and we hope to see it early in the new year. While the government has stated its aim to pass the legislation before the next election, with limited sitting days available this timeline looks to be increasingly tight.
