The introduction of the Delivering Better Financial Outcomes legislation into Parliament is a very small step forward in the quest to make quality financial advice accessible to Australians. But it will do very little to achieve that goal – a goal which is one of ASIC’s stated priorities.
The changes to fee consent requirements will provide minor regulatory relief to some practitioners, and no relief to others. The Financial Advice Association outlined serious concerns about the proposed changes to advice fees being paid from superannuation funds.
There are two notable bodies of work attempting to make advice more accessible:
- The Australian Law Reform Commission Review of the Corporations Act that commenced way back in September 2020, and hasn’t led to a single change in the act to date, and
- The Quality of Advice Review that was handed to government in December 2022, and the only action to date is the DBFO legislation tabled in Parliament in March.
As an adviser practising at the coalface, nothing has changed because of these two projects. The cost of providing advice keeps increasing and less, not more, Australians can afford to obtain advice. What a perverse outcome for consumers.
Some of the necessary reforms to address the substantive issues will need to be passed through Parliament. That should send a shiver down the spines of all of us given the composition of the current Parliament, and the propensity of our politicians to play politics. There is no guarantee that worthy legislation that benefits consumers will be enacted in a timely manner, if at all.
The financial advice industry is at a critical crossroad right now. Advisers and consumers alike need a circuit-breaker.
Back on 21 September 2021, newly appointed ASIC chair Joe Longo addressed an event hosted by the then Association of Financial Advisers (now part of the Financial Advice Association).
It touches on many of the issues that the ALRC review and the QAR dealt with.
One of his notable observations was that as long as the regulator and the industry each play our parts, the issues can be resolved. He had three suggestions for advisers:
- Continue to focus on the interests of our clients
- Cultivate and advance our industry’s value proposition
- Comply with the spirit of the new laws
Many or most of us have been complying with points one and two for years. None of us can comply with point three as there aren’t any new laws. My statistical life expectancy is 24 years and I fear that I may not live long enough to have the opportunity to comply with point three.
Frankly, as a licensed adviser there is nothing more that I can do to make financial advice more accessible to consumers. Neither advisers nor our professional associations are empowered to do that.
But in my view, ASIC is, and should.
Longo’s address that day outlined challenges faced by advisers that are well known by all of us. He then observed that “the next step is for ASIC to deliver initiatives to assist industry overcome some of these impediments….” On reading that, my heart jumped for joy.
His proposed next steps were to provide extra guidance in the form of an example Statement of Advice and an Information Sheet about Records of Advice.
My heart sank like a stone. How ASIC thinks either of those things is going to make advice more accessible to consumers is beyond me. Preparing these documents in the currently prescribed forms is probably the costliest part of the advice process.
The author of the QAR, Michelle Levy, would appear to agree with me. Recommendation 9 of the QAR addresses this by observing that the requirement to provide SOAs and ROAs should be replaced by a requirement for providers to maintain records of advice provided.
If anyone was serious about reducing the costs of advice, they would find a way to implement Recommendation 9 sooner rather than later. This step alone would probably have the biggest impact on reducing the cost of advice. It is lamentable that this wasn’t included in DBFO legislation.
The requirements to provide advice documents are embedded in the Corporations Act, so resolving this is not going to happen quickly – to the ongoing detriment of consumers.
Longo’s address to the AFA event also observed that ASIC provides guidance to industry on how they will administer the law. I am not sure how much scope that ASIC has here when thinking of Recommendation 9, but I would observe that the Australian Taxation Office from time to time, alerts stakeholders that they will “not apply compliance resources” to particular issues.
So, inspired by the ASIC chair’s observations that “as long as the regulator and the industry each play our parts issues can be resolved,” and, “the next step is for ASIC to deliver initiatives,” I urge ASIC to fully explore how Recommendation 9 can effectively be implemented now rather than waiting years for other things to happen.
I am sure there will be barriers but my view on these things is that if a just outcome is identified, we should find a way to make it happen rather than finding reasons for it not to happen.
David Smith has been a licensed financial planner for over 20 years. He is the owner of a financial planning practice based in Darwin. He is the Chair of the Darwin Chapter of Financial Advice Association Australia and a member of the SMSF Association NT Local Community. The views expressed here are his personal views.
