Concerns remain across the financial services sector following the tabling in parliament on 27 March 2024 of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024. Nevertheless, the sector is broadly supportive of the legislation, although some details still need to be finalised.
The final version of the legislation allows trustees to deduct fees from members’ account to pay for the cost of financial advice relating to the super fund.
“This is standard practice and this was a technical clarification to make it happen,” says BT’s Head of Financial Literacy and Advocacy, Bryan Ashenden.
“Trustees still need to be satisfied advice is personal and relates to the members’ interest in the fund. However, there’s no requirement in the final version of the draft legislation for the trustee to be satisfied the fee is appropriate. This reduces red tape for trustees.”
The legislation also gives the federal government the ability to approve an annual fee consent form.
“There are still details to be worked through, such as how this works if a client has multiple product providers, given privacy concerns. It could mean clients are still required to complete a different form for each provider,” Ashenden says.
There were concerns under the previous version of the legislation around the timing of the anniversary date for the annual fee consent process. The final draft includes some flexibility about resetting dates.
Improving options for consumers
The bill is an outcome of the Quality of Advice Review into consumer access to, and affordability of, financial advice. The review was a requirement of the 2017 Banking Royal Commission.
The review, part of the federal government’s Delivering Better Financial Outcomes package, is designed to reduce the complexity and cost of providing financial advice, without reducing consumer protections. The intention is to give people more channels to access financial advice.
The Quality of Advice report, which included 22 recommendations, was handed down in early 2023. In June 2023, the federal government announced it would accept most recommendations, to be implemented in three tranches.
A new playing field
Overall, the Quality of Advice review is good news for investors and the financial services sector.
“Simplifying the process of providing high-quality advice means more Australians will make better financial decisions and have more opportunities to build and live their best lives. Simplicity reduces costs, which is important. The changes will improve consumer engagement as it will be easier to understand the benefits of advice,” says Pete Pennicott, a director of financial advice firm Pekada.
For super funds and banks, the reforms are an opportunity to appoint more people to provide financial advice. They are a catalyst to deliver advice in a more efficient manner.
“For advisers, this will hopefully remove a lot of non-value-adding activities and free up time to spend with clients,” says FAAA Head of Policy and Advocacy, Phil Anderson.
The creation of a new class of employee adviser, who would not be bound by the same education standards as professional advisers, is a key part of the reforms. This is not part of the current tranche.
“This will make it possible to provide more advice. The intent is the providers of this type of advice would not charge for it, with financial institutions covering the cost from product margins,” says Anderson.
Consequently, super funds are the key target of this new class of adviser.
“As the Australian population ages, they will need a lot more advice and an increasing proportion of this will be delivered by super funds. Banks will have a role to play, however it is not envisaged this will lead them to rush back into financial advice,” says Anderson.
Early this year, federal Treasury started consulting industry on the second tranche of draft legislation. Draft legislation for the second tranche is expected towards the middle of the year.
It’s yet to be determined whether these reforms will be done all at once or in a staged approach, says Ashenden.
“We think the intent is great. But like most of these things, let's make sure this can actually work in practice,” he says.
A question is how quickly a new adviser cohort could be trained. “People may need to achieve a diploma or advanced diploma level of education. It's going to take some time for that to happen,” he says.
If the proposed laws go ahead in their current form, this is an opportunity for advice firms to explore whether existing staff could be trained to be part of this new group of advisers, a career development opportunity for practices.
