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New class of advisers limited to prudentially regulated products: Jones
Licensees will be free to charge a direct fee for advice given by a new class of diploma-qualified advisers according to Financial Services Minister Stephen Jones, who unveiled further details of the government’s second tranche of Delivering Better Financial Outcomes reforms on Tuesday night.
The new class of advisers will give advice access to a broader swathe of Australians at a lower cost than the current “professional” model, Jones explained, but the new advisers will be limited to providing advice on products issues by prudentially regulated entities such as superannuation funds and banks.
“They will be prevented from providing advice on more complex topics, such as establishing a self-managed superannuation fund or advising on a managed investment scheme, through a blacklist to be prescribed in regulations,” Jones said.
While this directive will effectively ringfence the product scope for new advisers, it will also limit the benefit to licensees serving professional advisers, who often recommend managed investment schemes to clients.
The minister made clear the government’s intent to keep a bright line between professional, ASIC-registered advisers and the (as yet unnamed) new class of advisers, who are set to meet the equivalent RG-146 qualifications ASIC-registered advisers were formerly required to meet.
“It is the government’s vision that the new class of adviser serves as one entry-point to rebuild the financial advice profession, and the government remains committed to reforming the broader education pathways for financial advisers,” Jones (pictured) added.
He also warned that while new advisers will be encouraged to give clients “nudges” towards specific actions such as life event activities (reaching retirement age, for example), hawking will not be permitted. New advisers will also be held accountable to a modernised version of the best interests duty, and will be prohibited from charging ongoing fees or receiving commissions.
Among the other changes to the advice ecosystem, Jones confirmed the new best interests duty will provide legal scope for limited advice if it meets the client’s needs. As promised in the draft regulation, the safe harbour steps will be removed and Statement of Advice documents will be reformed.
The full list of reforms in the second tranche of the SBFO package is below:
- create a new class of adviser to provide safe and simple advice to more Australians, such as choosing an insurance policy or basic questions about retirement;
- modernise the best interests duty by providing legal clarity that will allow advice on single or limited scope issues if this meets the client’s needs;
- remove the safe harbour steps so advisers can focus on their client’s needs – though well intentioned, the safe harbour steps have become interpreted to mean financial advice must always be comprehensive, even if that is not in the client’s interests;
- reform statements of advice so they help consumers make informed decisions;
- clarify the rules on what advice topics can be paid for through superannuation, including through collectively charged arrangements; and
- allow superannuation funds to provide helpful ‘nudges’ to drive greater member engagement at key life stages.
Industry response
Much of the announcements made by Jones were already baked into previous versions of the government’s DBFO reform suite, and while no major surprises were dropped, industry stakeholders were generally supportive of the changes.
That support was conditional, however, with final details to be announced soon according to the government.
The Financial Advice Association Australia (FAAA) said it was “cautiously positive” on the second tranche of reforms, but reserved its assessment for those final details.
“We are looking forward to seeing further detail on how these reforms will work, beyond the high level provided in today’s announcement,“ chief executive Sarah Abood said. “Nevertheless, it is good to see the government’s announcement addresses a number of the concerns that the FAAA has identified during earlier consultation.”
The FAAA said it was pleased the government had approved the new class of adviser (NCA) as a pathway to becoming a professional adviser, with the diploma qualification required (equivalent to AQF5) to also count towards equivalent degree qualifications.
“It’s extremely important that the education for NCAs can count towards a full financial planning degree, and that the NCAs of today can become the professional financial advisers of the future,” she said.
The institutional providers and their representatives set to provide the new class of advice to their cleints and members were effusive in their praise of the reforms. Insurance provider TAL called the announcement a “win” for Australians while MLC Life Insurance called the reforms “essential”.
Similarly, the Association of Superannuation Funds of Australia said the reforms were a “true collaboration and testament to the broad commitment” of those involved in the consultation.
