The Financial Services Minister recently announced the government’s response to the Quality of Advice Review (QAR) – adopting the bulk of the recommendations immediately, with legislation to come in the second half of 2023 and early 2024. From the 22 recommendations made, the Government will adopt 14 recommendations in full or in principle.
To give you some background behind the Quality of Advice Review (QAR) and why there was a need for the review in the first place undertaken by the government.
Over the past decade or so, the financial advice sector has undergone significant change. In response to, sadly, bad practices in the sector, lead to calls for ever more regulatory reforms to protect Australians from poor investments and inappropriate financial advice.
These reforms often targeted a specific part of the problem. Whilst well-intentioned, this has resulted in financial advice has become heavily regulated over this period including excessive educational requirements.
As a consequence of these reforms, the industry has seen a mass departure of advisers. Over 10,000 financial advisers have left the industry since 2019, nearly 40%. Overlapping regulations, the shrinking adviser pool and rising costs have now been acknowledged as a problem.
Stephen Jones, Minister for Financial Services stated that “I will be introducing legislation to Parliament to follow through on the Government’s election commitment to create a pathway for experienced advisers with a clean record to continue practising without the need to undertake further education. This will soften the landing as the sector transitions towards a fully professional industry, without compromising standards”.
The implementation of recommendations is being implemented over 3 streams of work.
We have detailed each of the streams below:
Stream One – Removing red tape that confuses consumers
The first stream of work will streamline the process of advising on current channels.
- Safe Harbour steps originally designed to protect financial advisers, will be removed from the Best Interest Duty with a consultation to determine implementation details and the implications of adopting the remaining parts of recommendation 5.
- Ongoing fee renewal and consent requirements will be streamlined into a single form, and the requirement to provide a fee disclosure statement will be removed.
- Statements of Advice will be replaced with a more fit-for-purpose advice record, with consultation to determine the final design of the replacement.
- More flexibility will be provided in how financial service guide requirements can be met.
- Standardised consumer consent requirements will be introduced to classify a consumer as a wholesale or sophisticated client.
- Certain exemptions to the ban on conflicted remuneration will be simplified and some removed, including:
- clarifying that monetary or non-monetary benefits given by a client are not conflicted remuneration along with the removal of consequential exceptions (accept recommendations 13.1 and 13.3);
- removing an exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months.
- removing an exception to conflicted remuneration rules for agents or employees of Australian Authorised Deposit-Taking Institutions.
- The Government will defer consideration of a review of time-sharing schemes, until after the completion of Treasury’s review into the regulatory framework for Managed Investment Schemes.
- Standardised consumer consent requirements will be introduced for life, general and consumer credit insurance commissions.
Stream Two – Expanding access to retirement income advice
- The restrictions on collective charging will be amended to allow superannuation funds to provide more retirement advice and information to their members.
- Superannuation trustees will be provided with legal clarity around current practices for the payment of adviser service fees.
Stream Three – Exploring new channels for advice
The Government will explore expanding the provision of advice by other institutions by consulting industry and consumer stakeholders on recommendations to:
- Broaden the definition of personal advice
- Remove the general advice warning
- Allow non-relevant providers to provide personal advice
- Introduce a good advice duty
- Amend the Design and Distribution Obligations
This consultation will also finalise implementation details for:
- The design of the replacement for Statements of Advice
- The implementation details and the implications of adopting the remaining parts of recommendation 5.
- The Financial Adviser Code of Ethics
Expanding access to affordable retirement advice.
Next steps in QAR
Some measures may just move to Exposure Draft legislation (consent requirements, FSGs or removal of exemptions) others will require implementation detail consultation (e.g. what does a reduced Statement of Advice look like, outright or partial removal of the safe harbour steps). This will also consider what rules need to be in place for superannuation funds to provide more personal advice and whether this model can be extended to bank fund managers and insurers.
The Financial Services Council will engage the Government as it consults on the three streams of reform and submissions will be developed with input from relevant working groups and board committees.