The government's recent release of the first tranche of legislation under the Delivering Better Financial Outcomes package has sparked both anticipation and scepticism within the financial advisory community. Considering the median advice fee has jumped 48% in the last five years, will this first round of reductions in regulatory hurdles translate into more efficient advice production and, consequently, cost savings for consumers?
Financial Services Minister Stephen Jones, in a media briefing, emphasised that the primary objective of this legislation is to eliminate burdensome red tape, aiming to streamline processes for financial planners and individual advisers. "Advisers have been saying for some time now, 'if you reduce the red tape, we'll be able to provide more affordable services.' We're going to reduce the red tape, over to you," Jones said.
However, the initial response from the industry suggests a mixed sentiment considering the exclusion of key recommendations made in the Quality of Advice Review, such as abolishing the ‘safe harbour steps’ and simplifying statements of advice (SOAs). The Financial Advice Association Australia (FAAA) CEO, Sarah Abood, expressed disappointment, noting that these elements are crucial in cutting unnecessary red tape and could substantially reduce the cost of providing advice.
As advisers delve into the details of the first tranche of QAR legislation, opinions on its effectiveness are sure to emerge, and debate will likely intensify as advisers assess the actual cost-saving benefits and the potential for future reforms to address the remaining administrative burdens.
Matt Hale, Director and Senior Financial Planner at Rising Tide Financial Services in Melbourne, says, “14 out of 22 [recommendations] accepted is a positive - let's see what the rest of 2024 brings, as Mr. Jones said there's still a bit to play out. Overall, I feel a level of comfort that advisers have been heard - which is a positive. Also, seeing that acceptance isn't 'all or nothing' is something that provides me comfort.”
Garth Collingwood from River City Financial in Brisbane says, “Reducing red tape will allow advisers to spend more time helping people who need financial advice. Anything that helps more Australians get access to Financial Advice is a step in the right direction.”
Nerida Hicks of Scion Advice in Nowra, NSW, says, “These implementations are heading in the right direction. I’m remaining patient; unfortunately, we can’t do everything at once.”
Some notable first draft bill inclusions receiving praise from advisers are:
Recommendation 8
Aims to consolidate ongoing fee consent documents into a simplified format and repeal the existing requirement for advisers to provide a fee disclosure statement to their clients as part of an ongoing fee arrangement.
Adviser Kath Cairns from Wealthwise in Perth says, “The recommendation to consolidate ongoing fee consent requirements to a single standard ‘consent form’ will save unnecessary work for advisers and clients; it certainly is a positive step in the right direction.”
Matt Hale suggests, “Fee consents becoming more streamlined will benefit our clients - we are on annual agreements so FDS removal is of no benefit to us.”
Recommendation 10
Aims to allow more flexibility for financial service agreements, giving providers of personal advice the option to either continue providing FSG information to their clients in accordance with existing requirements or to make this information publicly available on their website.
Matt Hale says, “FSG flexibility is potentially beneficial, but I think the devil will be in the implementation.”
Recommendation 13.7
A standout inclusion, confirming that commissions on life insurance can continue, with one-off written consent from the client before the policy begins. Kath Cairns says, “This potentially seems somewhat counterproductive. Clients sign what I would believe to be a consent form when agreeing to purchase the product after the advice recommendations are presented in the Statement of Advice which discloses the Commissions received; however, it’s too early to say until we see stream 2 early next year.”
Recommendation 7
In a surprising move, the first tranche includes recommendation 7, initially part of the second stream of the government's response to the Quality of Advice Review (QAR). This recommendation introduces changes to the Superannuation Industry (Supervision) Act 1993 to allow superannuation trustees to pay a fee from a member's account to an adviser for personal advice related to the member's interest in the fund. Addressing the inclusion of recommendation 7, Minister Jones acknowledged the pragmatic approach taken, stating, "It's just about being entirely pragmatic. What's ready to go, let's get it out, don't hold it up."
Submissions on the draft bill can be made up until December 6th, 2023.
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Comments7
""Look forward to being seen as a trusted professional"? Who, other than the media, tells you that you are not? I bet your clients see you as a trusted professional. IFAs have been the scapegoat to ASIC's incompetence. More paper, different name....just do your job well or make space for someone else to do so."
Anon 09:08 on 22 Nov 23
"My comment is simply commending Sean's comment below! Every single point is 100% accurate, would like to connect with you mate!"
Jeremy 08:51 on 20 Nov 23
"It makes us all feel good to have the government listening to us and trying to reduce red tape. This is no doubt a positive trend and very different to the post GFC era. Having said that, I agree with the comments above. The changes to fee consent / FDS will be of minimal advantage. Good idea, welcomed, but very minor in the grand scheme. Congratulations to those out there still charging commissions that you will be allowed to continue to do so. I don't, but understand their relevance. This of course does not save any time or cost, just payment arrangement. The thing everyone seems to be excited about is simplifying SOA's. I personally am not getting my hopes up here at all. Correct me if I am wrong, but the goal the Gov is going for here is to simplify the document that the client receives. It is not to simplify the process the adviser must go through and document to arrive at that advice. As such, it will be the same amount of work, the difference will be a larger "working papers" file that sits in the background justifying how you got to what you recommended and a more concise client facing document. How does that make a meaningful difference to the cost to provide advice? The only way, in my opinion, you can genuinely reduce the cost of financial advice is to lower the expectations of the process the adviser is expected to go through and document in formulating the advice. Simplifying the SOA and removing the Safe Harbour steps to my way of thinking will not even make a dent. All advisers are different, but in my firm coming up with what I am recommending takes about 30% of the time. The other 70% of the time is documenting how I got there, dotting all the i's and crossing all the t's just in case the file gets questioned in the future. If the SOA is simplified are you going to save any of this 70%? Am I saying the regulations that lead to the 70% should be abolished? Not really. Even if they were removed, would you stop documenting how you got there? I wouldn't, even if I was not required to document my process and save evidence, I still would because if I don't and the file comes under question what am I going to rely on to defend myself if I did not document it? The only way the government could convince me to stop documenting my process is to somehow assure me that I can not be sued for my advice (within certain parameters). If the government did that, what would it do to the trust of the profession? Would it bring the cowboys back? I personally would not support the government if they proposed this, I value the direction our industry is heading and look forward to being seen as a trusted professional. Financial advice is time consuming and complicated when done correctly. That is just the reality of the situation. There is no getting around it (luckily its also super valuable). The cost is never going to get back anywhere near to where it was in the past because in the past that was not financial advice, it was PRODUCT SALES. The regulations now require advisers to give considered, researched, unbiased, non-conflicted and documented ADVICE. This was necessary because in the absence of these regulations the industry was full of vertical integration and cowboys flogging PRODUCTS. Another unspoken about reason for why the cost of advice has increased so much is a shift in the product manufacturing and distribution models in the industry. They have shifted to a "self service" model. A lot of the administration and processing that used to be done by the product providers has been shifted into financial adviser offices. I don’t blame them. They did it in the pursuit of profits. They also did it because of the introduction to the Best Interest Duty and cap on soft dollar benefits. Its not just technology driving prices in super/funds management down. When you look at the system as a whole though, who do you think can do that administration more efficiently - a large corporate operating an army of administrators who work with the same product all day every day or a small advice business who is required to advise on dozens of products and has to pay Client Services Administrator $70,000-$90,000 pa plus super? I don’t have a solution for this trend, don’t think there really is one, but I'm just saying..... The QAR is not going to be a silver bullet to meaningfully change the cost of delivering advice. On the edges no doubt, but nothing substantial is my prediction. Is there a solution? Honestly, not really in my view. What would I do if I were the minister? On a high level I would try to separate strategic advice and product advice. The value is firmly in the strategic advice over the product advice side of the equation the majority of the time. So why does so much of the legislation circle around "financial product advice?" The strategic side of the advice is fun. The strategy side is not that time consuming once you know all the rules and theories. Its the same play book more or less repeated over and over with adjustments for client circumstances. The product side however, that can take forever. Reading a PDS for a product a client has when you meet them that you have never read before. Trying to get your head around what they have and if they should keep it from scratch every single time is time consuming. Trying to find a reason you can compliantly hang you hat on to justify one product over another is muddy and time consuming. At the end of the day, what value is all of this adding? In some unique circumstances, YES, it adds a lot of value. for example, if they are in some old outdated product or have some particular niche need that only a certain product can solve, but on the whole does it really matter if they are in ABC platform vs XYZ Platform? Insured with ABC instead of DEF? Is it worth the client paying me to think for even one second about if they should be with Super fund A vs B if they are both mainstream, quality products? We have TMDs and DDOs and APRA Super Tests and APLs, why is the adviser still spending so much time researching and justifying product selection? Scrutinize me all you want on my strategic advice, but cut me some slack on the product side and you will see meaningful changes in advice costs. The product is the means to the end. They all know what the others are doing and they all more or less adjust and compete. We are no longer product gate keepers. We are financial ADVISERS. Stop regulating us like the former and start regulating us like the latter. "
Sean 17:58 on 16 Nov 23
"Reducing red tape is one thing. Cutting through an impenetrable jungle, followed by a maze of contradiction to a destination where the journey, glanced at from the start, seems all too hard and the end result appears to be more complexity with little correlation to what should be, though the hardships that will need to be undertaken, is not a welcome mat, it is more of a warning that trespassers will be prosecuted. This is the Wealth Protection part of Financial Advice, that has been left in the desert, broken and deserted, with little water and no search and rescue team driving to the rescue. The impact of thousands of experienced Advisers leaving the Industry and Billions of dollars of lost premiums, lost revenues, lost lives for hundreds of thousands of Australians and their families who now are left financially devastated due to illness, injury or death, who could have had, with good advice, sufficient Insurance coverage to pay off debt and provide future cash to pay ongoing bills, is a National disgrace and must be remedied NOW to make it viable for the Advised Life Insurance Industry to rebuild. Holistic Advisers are reluctant to move forward in the risk space and there has been as far as I know, only a handful of new Advisers who have completed the University degree program so they could specialize in risk advice. Thousands of exited Advisers and virtually NIL new risk Advisers, is not conducive to making a bold statement of reducing red tape to make the provision of advice more affordable and available being of utmost importance, does not add up with the facts on the ground and at the coal face. Australia is being held hostage by the Legal Industry and Legal framework that is stifling Business and cutting off any incentive to start or even keep going. Stephen, if you are serious about making advice more affordable and in the case of Life Insurance, more affordable premiums, then we must cut down the maze and clear a path so light can pierce the gloom, because all people see today is a dark tunnel with no incentive to enter."
Jeremy Wright 17:04 on 16 Nov 23
"These "reforms" will do very little to reduce red tape. Amendments to Corporation Act, Code Of Ethics and the way in which SOA's & ROA's can be delivered in a significantly reduced form - that will produce real time saving benefits to advisers. Having one form to consolidate fee consents will save little time. You still need to provide the advice within the prescribed fee consent period, get the client to sign off on the fee consent & then submit to the product provider and get them to process it. Currently we get clients to sign off on the FDS at the same time. Given that the FDS is the same for virtually every client from year to year (unless services or agreed fees change), having to issue only the OFC will save minimal time. What we as advisers is a level playing field where our advice is going to be judged to same standards as those about to be issued by Super Funds and not create a 2 tier approach"
2020fp 15:48 on 16 Nov 23
"I don't believe any of these initiatives will make advice more affordable. Perhaps the removal of the FDS requirement will assist some advice firms, but not those that have already moved to fixed term 12 month agreements. A standardised fee consent form is helpful, but it is still a form that needs to be prepared, sent to clients, chased up, chased up, chased up and then submitted to the product provider, then checked to make sure the product provider implements it correctly. Perhaps I am missing something..."
Tim Hall 15:46 on 16 Nov 23
"Missed opportunity to overhaul an industry weighed down by regulations designed to stop banks ripping off their clients. The adviser left in the game tend to be ethical and professional but are still treated like misbehaving children with prescribed processes and documents. What other profession has the government mandate the format and specific content of client advice? NONE!. The labour government is such a disappointment. Watered down outcomes or abdication of responsibility to others - RBA anyone? Missed opportunity."
Anthony Wolfenden 15:14 on 16 Nov 23