Coalition tables surprise QAR legislation: ‘Just the starting point’

The Coalition has introduced a counter Quality of Advice Review bill, aiming to circumvent the government’s lack of action on advice reform. 

The bill, co-introduced by Liberal MP Bert van Manen and shadow Minister for Financial Services Luke Howarth, focuses on replacing Statements of Advice with Letters of Engagement and Records of Advice. 

Because of the specific focus on SOAs, the bill leaves out changes to removing the Safe Harbour Steps, as well as the thorny and highly contentious issue of product manufacturing institutions giving financial advice which are the other key elements expected in Tranche 2 of the Labor Government’s Delivering Better Financial Outcomes legislation. 

The Coalition’s proposed legislation will provide a “clearly documented” link between advice provided and the scope of advice the client has sought, van Manen tells Professional Planner. 

“There are plenty of firms that have used Letters of Engagements already because I’ve seen copies of them provided to me by various advisers,” van Manen says.

“This, to a degree, enshrines something that some professional firms are already doing and it’s about clarifying the process. There are a range of other issues that need to be dealt with, this is just the starting point.”

The opposition MP adds there are other policy proposals being worked on that will hopefully be launched in the new year, although was unable to reveal specifics. 

“I thought this was an important place to start and that we can build on this as a foundation,” van Manen says. 

A spokesperson for Minister for Financial Services Stephen Jones wouldn’t confirm whether Labor would support the bill but says the government’s next legislation will be a wider ranging reform of financial advice laws. 

“The government is drafting the next tranche of reforms for introduction which will cut red tape on financial advisers, including by streamlining statements of advice, removing the safe harbour steps and modernising the best interests duty,” the spokesperson says. 

“The government’s reforms are a package which will reform the financial advice framework as a whole. It will provide certainty to stakeholders and better affordability for consumers without compromising quality.” 

Letters and records 

The Coalition bill specifies a LOE should outline the scope of the advice sought by and agreed to by the client. 

Details in the ROA should include why the advice is provided, the scope of the advice, information about remuneration/commissions or any other commercial benefits received, details of the adviser’s licensing agreement (or who they are an authorised representative for), and the disclosure of any potential conflicts of interests.  

Both the LOE and ROA will co-exist, according to van Manen, with the former outlaying the initial scope of advice and the latter demonstrating how that has been acted upon by the adviser. 

“In tying those two things together that can then clearly demonstrate if there’s an audit or if there’s an issue, it’s quite clear to see where the issue is because there’s a mismatch between the scope and the recommendations,” van Manen says. 

But van Manen says he elected not to delve into the expansion of advice through super funds, insurers and banks, conceding the boundaries of product producers giving advice was a “vexed” issue. 

“The delineation between advice about the product you’ve got as opposed to advice more generally, I think is fair to say has been grey,” van Manen says. 

“For me personally, I would like to see advice or product manufacturers be excluded from providing advice. However, that comes with a qualification in that you should have a system in place where if people have a particular product, they should be able to engage directly with the product provider to get the information about that product. 

“Where does that piece end and where does it get personal advice? If anybody is being honest, I don’t think anyone has a clear view on how that delineation occurs cleanly.” 

Neither party backing Levy’s proposal 

The QAR commenced in 2022 after the 2019 Hayne royal commission recommended a review “of measures to improve the quality of advice” three years after the final report was submitted to the then Coalition Treasurer Josh Frydenberg. 

Allan’s partner Michelle Levy was appointed to lead the review before the election, with Jones choosing to not interfere with the review and instead wait for the final report before making specific policy decisions on advice reforms. 

Among the 22 recommendations from Levy’s report, handed to government in December 2022 and made public the following February, was the complete repeal of Statements of Advice. 

However, Levy recommended that advisers still retain complete records of the advice provided, with written records given to clients on request, and that ASIC would set out guidance for record-keeping requirements. 

The Labor government instead chose to replace SOAs with a “fit for purpose” document based on industry consultation, accepting the recommendation “in principle”. 

The Coalition – in opposition and through various high-level spokespeople including Howarth, Senator Andrew Bragg, former shadow Minister for Financial Services Stuart Robert and shadow Treasurer Angus Taylor – have called for the implementation of Levy’s review in full. 

But despite those calls, the Coalition bill still takes its own spin on Levy’s recommendations by mandating a written record be given to clients. 

“Whilst I understand what [Levy is] trying to get at, I’m of the view that anything should be in writing, signed and agreed to,” van Manen says.  

“The notion of having a verbal agreement and not in writing is a dangerous precedent.” 

The government’s stalling of advice reform has been attributed to a packed legislative agenda which has only further been compounded by drafting issues by Treasury. 

But the opposition criticised the government for failing to introduce more legislation despite having a “department of 1600 staff and a team of legislative drafters” at their disposal, while it has taken action from the Coalition to get the reforms into Parliament. 

The government passed the first tranche of DBFO legislation in early July after delays due to drafting issues that need to be rectified, as well as the controversial handling of changes to section 99FA in the Superannuation Industry (Supervision) Act that the industry argued would require super funds to review every SOA.  

The Financial Advice Association welcomed the bill from van Manen, noting his background as a former financial adviser, but is still hopeful to see the government’s SOA replacement proposals as well. 

“We have been engaged with the minister throughout the DBFO process and we look forward to the release of draft legislation for DBFO Tranche 2, amongst which we expect to see the government’s proposal to rationalise advice documents,” FAAA head of policy Phil Anderson says. 

“It is very pleasing to see that the issue of reducing the cost and complexity in the provision of financial advice is on the priority list for both the government and the opposition. We look forward to seeing reforms implemented in this important policy area.”