DBFO revived as licensees thrown bone on ‘new class of adviser’

Licensees will be free to employ a new class of diploma-educated financial advisers and charge for their services in a last-ditch effort by Minister for Financial Services Stephen Jones to legislate advice reform before the election.

In a briefing to select members of the press on Tuesday, attended by Professional Planner, Jones claimed he had achieved “consensus” between industry and consumer lobbyists and outlined five proposals as part of the much-anticipated second tranche of the Delivering Better Financial Outcomes legislation.

Among them, a surprise proposal to allow advice licensees to employ the so-called new class of adviser and charge for their services. The inclusion was advocated for by a handful of licensees and the Financial Services Council in the face of staunch opposition from some representatives of industry super funds. Jones said he was “moved” by the argument the new class could be used as a career path for the next generation of advisers.

“We need to rapidly upscale the number of financial advisers that we have in this country,” he said, adding that creating a “level playing field” among industry sub-sectors one of the guiding principles of what he called his “pet project” of advice reform.

However, the new class will “be restricted to providing advice on products issued by prudentially-regulated entities” i.e. super, insurance and retirement income. This may neuter the benefit to many licensees and practices who advise primarily on SMSFs and managed investment schemes.

Any fees charged must be “episodic” rather than ongoing and the new class cannot accept commissions. Licensees will also be subjected to monitoring and supervision to ensure that advisers are only providing advice within their authorisation, with new civil penalties attached for non-compliance. Their engagement with new customers will also be limited to customer-initiated instances, without the ability to cold-call or offer unsolicited advice.

The education standard for the new class of advisers will be a diploma-level, equivalent to the controversial RG146 qualification that was replaced with the current education standard that required bachelor’s degrees.

“The restrictions, plus the qualifications, plus the risk mitigation, I think we’ve got the right model here,” Jones said.

‘New era of vertical integration’

Moreover, super funds will still be handed what some critics perceive as a competitive advantage by allowing them to collectively charge members for advice they may never choose to receive. Professional Planner founder and publisher Colin Tate AM, for example, warned this mechanism could spell a “new era of vertical integration” in an editorial understood to have been widely circulated in Canberra. Disagreement over the proposal reportedly stalled the most recent rounds of confidential consultation with industry lobby groups.

Jones said the specifics of charging arrangements would not be “baked” into the legislation, but will fall into ASIC’s remit as regulatory guidance.

“I can say this – [it will cost] a hell of a lot less than the $6000 dollars you would initially pay for your initial consultation for a piece of comprehensive financial advice,” Jones said.

Jones justified the decision to permit collective charging by saying cross-subsidisation was commonplace in the default super system, giving the example of collectively-funded call-centres that some members may choose to utilise and not others.

“What’s the overarching legal obligation on trustees as they make decision on this and just about everything else they do. Is this in the best financial interest, collectively of the members in my fund – that is the first thing that they have to answer.”

But Jones hit back at the suggestion the new class will become a revenue generating vehicle for funds. “I can’t see funds will earn a cent,” he said.

“It won’t be a profit centre. For the funds, it’s about providing a service to their members, frankly that the Retirement Income Covenant currently requires them to provide but the law makes it impossible for them to do.”

Window of opportunity

The minister said legislation was still being drafted by Treasury. And yet, he said he still intended to secure passage of the legislation “this Parliament” despite the unknown but likely limited number of sitting weeks before the next election.

In recent days, speculation has fallen once again behind the probability of an April or May election, after Prime Minister Anthony Albanese spoke of plans to introduce legislation in February, which could give the DBFO bill a window of opportunity, albeit narrow.

He said he had not yet settled on “nomenclature” for the new class, arguing he did not want a debate about the wording to overshadow the substantive elements of the bill. The comments are a reference to the government’s much-maligned and subsequently-dumped description of the new class of advisers as “qualified advisers” in earlier announcements. Jones said the new name will be “sorted between now and the end of the year”.

Jones defended the decision, first reported by Professional Planner, to hold more recent consultation on the second tranche behind closed doors with handpicked industry associations and subject them to non-disclosure agreements.

He revealed that confidentiality was in fact requested by some participants in the roundtable meetings, so they could discuss commercially sensitive matters freely with Treasury officials.

“With no disrespect to all of you [journalists] who do a really important job, we didn’t want to read about things that we might have been talking about but weren’t seriously considering,” he said.

SOAs finally on chopping block

Beyond from the new class, the tranche two package will “modernise” the best interest duty by allowing advice on single or limited scope issues, and remove the so-called safe harbour steps.

“It’s about enabling advisers to provide more scaled and focused advice and get away from this form-driven, box-ticking operation of the existing best interest duty,” Jones said.

These uncontroversial measures would bring relief to professional advisers, but many were disappointed they were not included in the first “quick wins” tranche of DBFO, which included rationalisation of fee consent forms.

The legislation will also clarify that super funds can and should issue “nudges” to members to receive advice or make changes as they hit certain milestones.

“There is an argument to say we actually don’t need to legislate to make this happen, because the Retirement Income Covenant requires funds to do things like this,” Jones said. “But funds aren’t doing things like this because they think the current law doesn’t enable them to do it.”

Editor’s note: Conexus Financial will bring debate over advice reform into the public domain at the inaugural Professional Planner Advice Policy Summit in Canberra in February 2025. Have your say in the future direction of the profession by registering for the summit here.