More haste, less speed needed in advice reforms

Prime Minister Anthony Albanese’s ministerial reshuffle at the end of last month might have been something of a double-edged sword for Stephen Jones.

On one hand, Jones retained his positions as Assistant Treasurer and as Minister for Financial Services; recognition of a job well done in complex, difficult portfolios. On the other hand, Jones will for the foreseeable future remain in the firing line of sections of the financial advice community underwhelmed by the progress he’s made legislating the recommendations of Michelle Levy’s Quality of Advice Review.

Jones’s shadow, Luke Howarth, reminded us last week that it had been almost 600 days since Levy delivered her final report to the government and so far only one tranche of legislation has passed parliament – and even that was not a smooth process, riddled with drafting glitches and unintended consequences that took time, attention and energy to go back and fix.

Tranche one was meant to be the simple reforms.

It’s difficult to overstate how important it is that the government gets this second tranche of reforms right. The advice gap – the difference between the demand for financial advice and the supply of advisory services – is widening daily.

The number of people reaching the stage in life when they need information, guidance and advice on how to transition into retirement is growing faster than the advice profession can add new capacity, either in the form of better productivity per existing adviser, or by the entry of new advisers to the profession.

About 520 people will retire every working day of the week in 2024, according to the Australian Bureau of Statistics. If it’s true that each adviser serves around 100 clients, then the profession needs to grow capacity by the equivalent of around five fully fledged and, most importantly, fully productive advisers every single working day of the year.

Whether the true number of advisers remaining is 15,000 or 16,000 or some other figure, the simple fact is that there are not enough of them to serve the volume of people who need advice and guidance.

Any government has a limited capacity to enact legislation between elections – three years, at best – and can ill-afford its legislative program to be clogged up with avoidable errors and own goals.

Reforming financial advice could be a lasting Jones legacy, but only if it’s handled the right way over the next six months. He needs to reflect the confidence put in him by the Prime Minister by delivering tranche two as smoothly and with as few of the avoidable errors that characterised tranche one as possible.

Jones has rightly stressed the need to stay focused on the big picture, that the reach of the QAR (now called Delivering Better Financial Outcomes) is both deep and wide. The most substantive areas of advice reform are in tranche two.

Consultation is due to start imminently, with a legislative timetable looking like converging on the end of the year for reforms that seek to expand the availability of advice, including the creation of the confusingly named “qualified adviser” (which is likely to be renamed).

It’s expected that super funds will be at the head of the queue to capitalise on this opportunity, as they face a wave of members close to or entering retirement who will need information, guidance and advice as they make the transition.

But insurers, banks and even existing advice practices and licensees will also be free to employ qualified advisers if they want to, and if they can find a way of making it economically viable to employ an individual who’ll be prevented by law from being paid a fee by the client and from receiving a commission.

It’s critical that the creation of qualified advisers – or whatever they are ultimately called – is as smooth and cost-effective as it can possibly be, because it is an important step towards rectifying possibly the single biggest restriction on the availability of advice to Australians.

Qualified advisers alone won’t solve the advice shortfall. Other channels, notably digital, need to be developed in parallel and the productivity of existing advisers needs to increase.

There may have initially been little enthusiasm in Labor ranks for picking up the recommendations of a review instigated by a Coalition government. But the only other option was to shelve the QAR, open another review, create another delay, and then face the prospect of its recommendations landing in the hands of a new government equally uninterested in implementing the outcome of a predecessor’s review.

But it’s worth remembering that the QAR review was kicked off following the Hayne royal commission, instigated in large part in response to poor practices – including what amounted in some cases simply to theft and fraud – that had crept into the system since Labor’s own Future of Financial Advice reforms of a decade ago. An overhaul of the laws governing financial advice was overdue.

“There’s just an enormous amount of work and complexity to this,” Jones told the Professional Planner Shape of Advice podcast.

“You think you’re dealing with something which is isolated over here, like a really simple thing, like removing the safe harbour provisions, and you think that’s an issue that might only affect professional advisers. But it has tentacles all throughout the rest of the legislation and the regulatory landscape. Tinker with something over here, it has an impact on something over there. It’s a huge job of work.”

That may be so, but having committed to running with the QAR recommendations, Jones has a duty to deliver the reforms as quickly but as carefully as possible.