If the safe harbour steps remain, so does Australia’s advice gap

There is some method to the madness of the government’s Friday night release of still-incomplete draft legislation acting on the second tranche of financial advice reform.  

The chances of these laws being consulted on and then passed before the federal election are close to nil. But by making public the government’s homework so far (even in its fairly rudimentary current state with key elements missing) Minister for Financial Services Stephen Jones has increased the likelihood that the next Parliament will continue the body of work despite his resignation.  

If Labor wins the election, there is an actual exposure draft that his successor can complete, build upon and seek to legislate. If the Coalition wins, then the emergence of a draft bill might make them think twice about ripping the whole thing up and starting again, which could blow out what has already been an arduously slow multi-year process.  

Plus, the minister can say the reform package he consistently promised was indeed advanced on his watch (although he claims personal legacy is not a focus – perish the thought!) 

Nonetheless, the omission of both the “new class of adviser” proposal and the removal of the so-called safe harbour steps from the Best Interests Duty mean the legislation as drafted would do little to expand access to advice.  

The replacement of Statements of Advice with a less onerous Client Advice Record will allow advisers to claw back a little margin – and spare clients from the onslaught of paperwork that is a definitive downside of comprehensive advice. But it will not suddenly allow those advisers to begin serving mass market consumers or developing new revenue streams. 

Similarly, the clarification of the circumstances in which super funds can “nudge” their members and scope of advice they can collectively charge their memberships for might make them a little less cautious in giving members some help and guidance. But it won’t allow them to make radical changes to their existing processes. 

In other words, the holy grail of personal financial advice provided in affordable, scaled or digital formats – the very public policy goal that both sides of politics have agreed Australia should pursue following two decades of draconian regulation – remains elusive. 

In fairness, the government has made clear it still intends to add the safe harbour removal and new class of adviser provisions to the draft law when they are ready and pass the whole lot through Parliament at the same time. 

But without them, the package is arguably neutered. And it is the “modified best interests duty” as Jones described it at the Professional Planner Advice Policy Summit that is most critical. 

Almost nobody takes issue with the advent of a duty to act in the best interests of clients in principle – and certainly not Professional Planner, which for more than a decade advocated for a fiduciary duty and higher ethical and educational standards.  

The duty was a central plank of Labor’s landmark FoFA legislation, perhaps more profound even than the ban on investment commissions. Consumer groups (and likely some Labor MPs or even Cabinet ministers) are hostile to any changes to it, which helps explain why this can was kicked down the road, possibly to become the next minister’s problem.

At the same time, it cannot be denied that the safe harbour steps – which require advice providers to prescriptively lay out the ways in which they have complied with the BID – are at the very crux of the problem of inaccessible advice.  

Those who have sought to innovate by creating scaled and accessible forms of personal advice have all fallen over at that hurdle. The most significant was the now largely forgotten case of Plenty Wealth and Plenty Plus, which were robo-advice pioneers shut down in 2019 by their licensee after ASIC made clear there wasn’t a future for them. 

“We have formed the view that it is overly challenging to provide holistic digital advice within the constraints of the existing regulatory framework,” the co-founders of Plenty Plus and Plenty Wealth said at the time. 

It is understood that it was satisfying the safe harbour steps in a digital format was the stumbling block – as it was for the joint venture digital advice operation by fund manager Aberdeen and platform provider HUB24, which was also abandoned after it received little encouragement from the regulator.  

Both incidents signal that without overhaul of the best interests duty to make it less prescriptive and more principles-based or even workable, we will only really be grazing the edges of reform.  

It is also a reminder that – regardless of where the DBFO legislation ultimately lands – there will still be a powerful role for ASIC in interpreting and enforcing the law. And there are suggestions that ASIC isn’t exactly a fellow traveller in the mission to democratise advice, despite chair Joe Longo listing it as a priority when he first commenced in the job four years ago. 

With an unexpected federal budget imminent and election just around the corner, this half-baked legislation from the government is certainly better than nothing. But there are still plenty of roadblocks on the path to accessible advice.