After a tumultuous process of getting Tranche 1 of the Delivering Better Financial Outcomes legislation passed, expect Tranche 2 to mimic that but “on steroids”, the second episode of the new series of the Professional Planner Shape of Advice podcast has heard.
The government passed the first tranche of the DBFO in July, which was based on the Quality of Advice Review recommendations, but was mired by drafting errors and bitter division over changes to oversight of advice fee deductions from super accounts.
However, Financial Services Council chief executive Blake Briggs told the podcast the reform process involved more positive collaboration than has been acknowledged.
“The reality was the minister kept an open mind throughout and notwithstanding a bit of posturing from the advice community or the FSC or the minister or whoever it may be, we were still talking to each all the way through that debate,” Briggs said.
“That’s a healthy political and policy consultation process. Now Tranche 2 is probably going to be that but on steroids, if I had to take a punt.”
Briggs elaborated on the complexity the government faces when approaching advice reform, noting the different players who have their own philosophical beliefs.
“If you think about all the different stakeholders the minister is trying to balance up, you’ve got the consumer advocates, you’ve got individual advisers and the FAAA [Financial Advice Association], the FSC, not-for-profit super bodies – we’ve all got a different view.”
The government announced its response to the Quality of Advice Rreview last June and divided reforms into three steams: advice “quick wins”, improving the accessibility of advice through super funds, and expanding the provision of advice from other institutions like banks and insurers.
The legislation has subsequently been divided into two tranches, the first covering advice “quick wins”, like streamlining fee consent and disclosure documents, but also rules for super fund oversight of fee deductions from super fund member accounts.
Power to advice
CFS superannuation CEO Kelly Power says the second tranche of legislation is crucial because there are half a million previously advised or non-advised members in the CFS super fund who can’t get answers to basic questions.
“We would get about 4000 calls a month that we can’t answer put in that advice bucket,” Power said.
“Anything that starts to get into their personal circumstances or particular questions about their investments, basically you’re crossing that bridge into advice and we don’t have an advice licence, that’s an immediate referral to a financial planner.”
Even if these members could access an adviser, Power says a lot of them have balances of around $150,000 to $200,000 and are in decumulation, so they can’t afford advice.
“The average amount that someone who is advised has is about $1 million,” Power said.
“The people retiring with $200,000, the best thing they could do is optimise their Age Pension but it’s something we can’t help with.”
Power says it’s a priority for the industry to help the Tranche 2 reforms pass Parliament as it will help those types of members to get some form of advice.
“The people that need that help the most aren’t getting it,” Power says. “For us, that’s the big problem that needs to be solved.”
Threading the needle
Despite proclaiming advice reform was an urgent issue before being elected, Jones has since come under criticism for the pace of reforms, but Briggs also conceded the minister gets a tough time because the industry is at the “crunch end” of reforms.
“Don’t get me wrong, there is absolute legitimacy to a lot of the community’s concerns about things like the cost of the CSLR, that is spot-on,” Briggs said, referring to the steep cost of the Compensation Scheme of Last Resort.
“The minister deserves a lot of credit for pushing ahead with a very large and complex reform agenda in advice. The Tranche 1 reforms were important, but they were effectively a down payment…on what is coming in Tranche 2. They’re the ones that will really move the dial on a number of organisations that can provide advice.”
However, Briggs said the next six months are crucial to getting reform passed due to the impending election.
“There is an opportunity to thread the needle and get the reforms landed in that time,” Briggs said.
“I don’t underestimate how hard the office is working to try and thread that needle, but it doesn’t make it an easy job either.”
Briggs said he’s had more one-on-one chats than he could “possibly count” on the QAR reforms and Treasury has been conducting rolling consultations with industry on each element of design.
“That just goes to the complexity of rewriting this part of the Corps Act and the related legislation and regulation that goes with it,” Briggs said.
“I don’t think you can overestimate how complex the challenge has been for Treasury and so for [Jones] to allocate the amount of government resource that he has tackling [it] does deserve some credit. I just hope they land it and all that work has been fruitful for industry and we get what we’re hoping for out of it.”
The issue of complexity is 100% correct, though WHY it is so complex, seems to be brushed over.
When you have a multitude of problems that requires a Regulatory response and bearing in mind that the Government / Regulatory response to the 400,000 word Corporations Act complexity, was to turn it into an 800,000 word maze, then we all should feel somewhat dubious of the Governments ability to fix individual areas, with just one example being the Life Insurance Advice sector, which has been decimated due to the Governments inability to separate and delineate the REAL issues, or come up with REAL solutions, the end result being, Australians now paying more than double for Life / Disability Insurances and not being able to get quality advice due to the fact the Government “improvements” drove thousands of quality Advisers out of the Industry with totally unworkable red tape that only Lawyers, Public servants, Regulators and Government Ministers could dream up, though NONE OF WHOM would ever agree to being put under the same conditions themselves.
It is impossible to fix such a convoluted maze of differing Industry needs and all Australians needs, by thinking you can come up with a ONE fully encompassing solution, will fix all problems.
I have been yelling from the rooftops for over 10 years, that Life Insurance risk advice is a totally different Industry to the Investment Industry and needs to have differing rules, Regulations and Education mandates, so each field has clearly defined protocols that will enable existing and potentially new people to work under, that does not throw them under a bus, which is what the current maze does and has clearly shown time and time again, with insufficient Advisers to help Australians, a “Hotel California” complex where the inmates ( being Australian consumers ) can never leave, though the exit door being flung wide open for the Advisers who do all the work.
Asking a Lawyer to turn their language into common sense, plain English that everyone can understand, is like asking a salt water crocodile if it would prefer a salad.
The multitude of Public servants that Australian Tax payers have forked out multi-Billions of dollars towards over the last decade, have only come up with solutions that benefit them and only them.
You can NOT expect an Institutionalised Public servant, just like the army of road workers who spend most of their time leaning on shovels, to just get on with work in a proactive, positive manner, as that is an anathema to this sector of society with what must be a cult of secret hand shakes and a swearing on the book of sloth, to do their utmost to accomplish as little as possible, in the longest period of time.