Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Instos to re-enter advice, SOAs scrapped in landmark reform package
Banks, super funds and insurers will be encouraged to offer consumers financial advice as part of a package of reforms announced by Assistant Treasurer and Minister for Financial Services Stephen Jones on Thursday.
Statements of advice will also be abolished in their current form and replaced by an advice record that is “clear, concise and effective”, containing information pertaining to the subject matter, the advice, the reasons for that advice and the cost of that advice.
There will be a new class of adviser under the plan, who will provide a simpler version of advice and still be required to meet education standards, though it’s unclear whether these standards are linked to the current adviser education and ethics standards.
Despite being unqualified to provide advice in the manner of a registered adviser, the new class of advisers will be nominally called “qualified advisers” and will be prohibited from charging a fee or a commission.
“These changes will apply across all financial institutions, including superannuation funds, life and general insurers, and banks,” the minister stated. “It is expected that this new class – to be termed ‘qualified advisers’ – will generally be employees of licensed financial institutions. The licensee will be wholly responsible for the advice provided.”
All advisers will be subject to the same standard under a “modernised” Best Interest Duty, Jones stated. “This will give consumers confidence in the advice they have receive from the expanded, regulated advice environment.”
The new model will, according to the government:
- Modernise the best interests duty to ensure customers receive helpful advice, including on single issue or limited scope issues, at a high standard
- Replace statements of advice with a record that is in plain English and provides helpful information to make an informed decision
- Introduce a new class of financial advisers who can provide advice on simple topics, while being subject to the modernised best interests duty
In a policy position yet to be explained, the new model will also “allow super funds to provide helpful “nudges” to members to drive greater engagement with superannuation at key life stages”.
‘Deeply concerned’
While the proposed changes to the advice framework have been applauded by some stakeholders, others expressed concern that allowing banks and super funds to provide advice would confuse consumers while hampering efforts to professionalise the industry.
The Financial Services Council, which has a product provider base and was a vocal proponent of reform, supported the announcement, with chief executive Blake Briggs saying it could “unlock industry investment in retirement advice and low-cost digital advice solutions”.
“Every consumer has unique retirement needs and the Government’s recent consultation on expanding the suite of retirement income products available to consumers will not be successful without greater access to personal advice at retirement,” Briggs continued.
The Financial Advice Association of Australia (FAAA), however, whose base is comprised of advisers, expressed “deep concern” at the direction of the reform package.
“Our members fear this could be winding the clock back five years on our profession,” FAAA chief executive Sarah Abood stated. “It appears to invalidate the hard work and pain that has been involved in creating financial advice as a profession and winning the trust of consumers.”
The FAAA pointed out that consumers are likely to be confused by the labelling and categorisation of different classes of advisers.
“Specifically, the Minister has announced that any financial institution will be able to provide personal financial advice to consumers, using people who are not financial advisers – yet who would be called ‘qualified advisers’,” she said. “There is no detail on the qualifications that would be required, however they would be substantially less than what is currently required to provide financial advice. Thus, the proposed term is self-contradictory and extremely likely to confuse consumers.”
Worth noting is that the institutions behind this new class of advice will not be able to charge for the service, which is likely to make distribution a primary motivator. This raises the prospect of a return to the kind of egregious vertical integration seen in the pre-Hayne royal commission era.
“Rather than fixing the red tape to get consumer costs down, the government appears to be handing back to institutions the right to hire minimally qualified salespeople, who call themselves qualified advisers, to sell their products to consumers,” Abood said.
Legislation will be developed to implement the new advice model in 2024.
