Minister for Financial Services Stephen Jones has moved to reassure the industry he is still committed to financial advice reform despite reports that secret stakeholder negotiations were “at risk of collapse”.
A report published on page one of Monday’s Australian Financial Review was headlined: “No deal on financial advice reforms”. The article by columnist Jennifer Hewett alleged the near-collapse of negotiations between associations representing industry super funds on the one hand and licensees, retail funds and insurers on the other.
Asked to respond to the report, Jones tells Professional Planner: “The Albanese government’s financial advice reforms will ensure Australians can access safe and affordable financial advice when they need it.
“Our Tranche 2 reforms will be announced in the coming weeks and will address the gap in financial advice left by the former government so that the 5 million Australians at or approaching retirement get the information they need.
“We have had comprehensive engagement with stakeholders and are confident our approach will receive broad support.”
Government sources privately pushed back against the report, saying the AFR was beating up some disagreements between stakeholders into a foregone conclusion.
They said the government still believed there was a path to legislating DBFO’s controversial second tranche, which Treasury is currently seeking to draft in a way that may overcome disputes about the so-called “new class of adviser” recommended by Michelle Levy’s Quality of Advice Review.
But while the minister is optimistic about the bill’s prospects, it is increasingly clear that the thin veil of industry consensus that has sustained the advice reform project through a change in government and multiple delays – including a series of legislative drafting bungles – is slipping away.
The stalemate has arguably been accelerated by the government’s decision to hold closed-door consultations on the second tranche, attended only by hand-picked representatives of associations including the Financial Advice Association, Financial Services Council, Super Members Council and Council of Australian Life Insurers.
Professional Planner revealed last month this last-ditch attempt at forging private consensus among the groups included the unorthodox decision to require stakeholders to sign non-disclosure agreements, forbidding them from sharing details even with their members.
Fees-for-no-service 2.0
The impasse is understood to relate to the proposal, espoused by some industry super funds, that services provided by the new class of adviser could be paid for by the collective membership of super funds – a model akin to the existing intra-fund provisions albeit for a potentially broader range of services potentially including some personal advice.
The proposal was criticised in an editorial penned by Professional Planner founder and publisher Colin Tate AM, which argued that a collective charging mechanism for charging super fund members would be akin to the fees-for-no-service scandal widely publicised by the Hayne royal commission – an inquiry he publicly campaigned for.
Association of Independently Owned Financial Professionals executive director Peter Johnston – one of the few association bosses who was not a party to the confidential negotiations and is therefore able to speak publicly on the matter – makes a similar argument.
“The super funds are heading in the same direction [as the major banks before the royal commission] with their vertically integrated model,” he says.
“All institutions should be permitted to have internal trained staff to give product information and specifically related information – for example, tax and Centrelink ramifications – without the need for licensing. Any advice outside of this parameter must be outsourced to professional independent advisers working on a fee-for-service basis.”
Though they have been tight-lipped about the matter in public, some senior industry fund executives have privately argued that existing trustee and fiduciary obligations on super funds would preclude any misconduct not in members’ best interests.
Defying mathematics
One source with expert knowledge of the legislative process says it is now “mathematically impossible” for the bill to pass before the election, which will almost certainly take place in the first half of 2025.
However, the federal opposition has repeatedly pledged to implement the Quality of Advice Review recommendations in full if it wins the election. Coalition Senator Andrew Bragg described the reforms as “they best ideas we have” in the most recent episode of the Professional Planner Shape of Advice podcast.
Despite publicly supporting the review – led by Morrison government appointed Allen’s Partner Michelle Levy – the Coalition has since introduced legislation that has strayed from Levy’s recommendations.
And there is no indication that a returned Albanese government would walk away from the project, although some political observers fret there is little enthusiasm for advice reform in the federal Cabinet or Labor party room beyond Jones who could lose his (admittedly fairly safe) seat at the election or be redeployed to a different portfolio should the government win a second term.
Licensees, practice principals and practising advisers have arguably been shut out from the process, especially by the decision of their industry representatives to enter into NDAs with government officials. Conexus Financial will host the Professional Planner Advice Policy Summit in Canberra in February to force a more public and inclusive debate on the policy settings required to underpin a thriving advice profession.
If you are a licensee executive, practice principal, practicing adviser or super fund executive with advice responsibility, please register for the summit here.
If you are a service provider and supporter of advice providers, please contact my colleague Jordan Coleman for sponsorship opportunities at Jordan.coleman@conexusfinancial.com.au.
I am deeply concerned about the financial advice reforms proposed by Minister Stephen Jones and question the basis of his confidence in these initiatives. It appears that these reforms are designed to favor industry super funds, allowing them to dominate the advice landscape by creating vertically integrated superannuation behemoths. This would be achieved through the introduction of a “new class of adviser,” which seems to be a euphemism for less qualified individuals providing “free” advice.
Minister Jones’s approach suggests a fundamental misunderstanding of the financial advice profession and the potential consequences of these reforms. While he may believe he is addressing issues of “unaffordable advice” and improving “accessibility,” the reality would be the decimation of the for-profit commercial sector. This shift would enable industry super funds to reintroduce commission-like structures by collectively charging all members for services that most will not receive—a practice reminiscent of the “fee for no service” scandals of the past.
Charging all members for the availability of services used by only a few effectively mirrors a commission system, which undermines the progress made towards transparent and fair fee structures in the industry. It is imperative that any reforms uphold the integrity of the financial advice profession, ensuring that advice remains both high in quality and accessible, without compromising professional standards or consumer trust.
I strongly urge Minister Jones to reconsider these proposals and to thoroughly review critical analyses, such as the article by Colin Tate. A more inclusive and informed approach would better serve both the industry and the consumers who rely on it.