Minister for Financial Services Stephen Jones will release the first tranche of draft legislation on Tuesday morning giving effect to recommendations of the Quality of Advice Review.
It’s been a while coming. It’s a start, it’s better than nothing and at last the QAR ball is rolling. The draft legislation will reduce red tape somewhat, and that will have benefits for advisers and their businesses. Jones believes it should have benefits for clients as well.
“The overwhelming majority of this is about financial planners, and the people who are individually advised,” he said.
“For their client group, there should be the capacity for them to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that.”
Jones is pretty clear on whether greater efficiency should result in more profit in advisers’ pockets or lead to lower cost of services to clients.
“Let me put it this way – advisers have been saying for some time now, if you reduce the red tape we’ll be able to provide more affordable services,” Jones said at a media briefing on Monday afternoon.
“Okay, we’re going to reduce the red tape. Over to you to.”
Back in June, Jones divided the legislative program into three streams: the first aimed at removing onerous red tape that adds to the cost of advice with no benefit to consumers; the second at expanding access to retirement advice; and the third at exploring new channels for advice.
It was a smart, logical way to approach the Gordian knot of advice regulation, at least in theory. They say that in theory there’s no difference between theory and practice. But in practice, there is, and it’s turned out to be a little more complicated than a neat three-stream approach might have suggested.
The first tranche of draft legislation addresses some of Stream One and some of Stream Two. It’s not all of the Stream One bits about removing red tape, and some comes from the Stream Two focus on expanding access to retirement income advice.
It leaves the Best Interests Duty unchanged and it leaves Statements of Advice untouched – for now. Jones said his view was it was better to “get stuff out there that is ready to go, not hold things up that are straightforward”.
“And if things need a bit more work, do a bit more work on it,” he said.
“It’s just being entirely pragmatic. What’s ready to go? Let’s get it out, don’t hold it up.”
Jones can’t – no one can – quantify the exact impact these changes will have on the cost to deliver advice, except to say it should be less after the legislation takes effect than it was before; and once the Government gets itself wholly in agreement over changes to SOAs and the Best Interests Duty, there should be further efficiencies and cost savings still.
But it’s not necessarily a binary cost-or-profit equation. How the efficiencies from reduced red tape will work for individual practices depends very much on the practices in question.
The best financial advice businesses are already achieving strong revenue growth and profitability, and they expect that to continue. For them, some efficiencies will be welcome and there may be scope to pass savings on to clients.
For some, struggling to increase revenue or to make a profit on the revenue they do generate, these efficiencies and cost savings may be lifesaving.