Safe harbour removal needs to be top priority

Removing safe harbour and enhancing the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics will reduce 9% of the cost of financial advice and a 7% reduction in time spent, according to a panel.

Speaking on a Financial Services Council (FSC) panel on its whitepaper on financial advice, KPMG partner, Cecilia Storniolo, said over the last two years she had been hearing that the interplay between the FASEA code and best interest duty were causing the industry a great deal of angst.

The whitepaper had called for the removal of safe harbour steps in best interest duty and for it to be the first priority of the Government to enable a principles-based advice model under the existing regulatory framework.

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“During the interviews, some of the advice practitioners highlighted to us examples of where they actually may be successfully meeting part of one of those provisions but actually failing the other,” Storniolo said.

KPMG estimated the advice process to cost $5,334.64 and that the average cost of advice charged was $3,660. It said this showed advisers were not currently covering 100% of their cost production.

KPMG estimated that removing safe harbour while using the code of ethics as a tool to support compliance would reduce the cost of advice to $4,853.02. This was the proposal the FSC had recommended in its whitepaper.

However, removing safe harbour alone would reduce the cost by 11% to $4,746.84.

FSC policy manager for advice, Zach Castles, said safe harbour, FASEA, and best interest duty were all legislation created in isolation that impacted the provision of financial advice and made it risky to provide limited advice.

“We want to ensure that we unleash limited advice going forward but also enable a principles advice system to flourish,” Castles said.

“By removing safe harbour steps it gives the code of ethics the space to evolve as the profession evolves and as consumer changes evolve.

“Most importantly, it enables the best interest duty to effectively be stronger as the overriding provision on the advice that advice providers offer – that advice is judged against best interest duty alone. How they meet it is up to them and formed by the code of ethics.”

Mercer Australia financial advice leader, Susie Peterson, said if advice was given that was in the best interest of clients even though it missed points that safe harbour required advisers to address and thus failed through a technical aspect of the law that was supposed to help, it needed to be fixed.




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While removal of the Safe Harbour steps is a sensible suggestion, the FSC report erroneously assumes Safe Harbour is compulsory. It's not. The Safe Harbour steps are one way of demonstrating compliance with BID, and have been implemented by many regulators and compliance departments as a mandatory requirement. But they aren't strictly a legal requirement. The burden of Safe Harbour could be reduced right now without any change to the law, through a less rigid approach by regulators and licensees.

The licensees only react to the regulator and AFCA and PI demands. Both ASIC and APRA are a joke if there's any argument around developing a profession and any hope for limited advice.

The biggest problem was the banks and insto's seeing advice as a sales channel for product, the next biggest issue was the inept regulatory response. We shouldn't be looking to the FSC for solutions as they were conspiratorially involved in the first biggest problem, they are now trying to manipulate the second biggest problem for their ends, not those of adviser nor consumers.

Yep, the FSC has shafted advisers in the past. The FPA has also made some bad decisions.

But I just don't get this refusal to acknowledge and support the good ideas those organisations come up with. It's cutting off your nose to spite your face. Try to focus on the merit of the proposals, not the past behaviours of their authors.

Don't disagree with your idea if that was what was happening but changes aimed to help large super in the main doesn't fill me with the warm and fuzzies when it's piecemeal at best for advisers.

I would prefer a disaggregation of advice from product across the whole corps act, removal of afca and replaced with a disciplinary sub committee of the professional standards board and removal of ridiculous over regulation starting with EFDS.

FSC is still only acting in it's own best interests, there is nothing altruistic I can see in this at all, the leopard therefore to my mind at least, hasn't changed their spots.

Wildcat, you and Yogi remind me of Miss Havisham in Great Expectations.

If you'd actually read the report (commissioned by the FSC) you'd also find the real outcome and recommendation is to replace the adviser, with an online calculator or App offered by a large Bank or HestaSuper....because of all those duplicated regulations, levies and hopeless Government departments, and expensive advice is resulting in access to advice declining....but here's a couple of shiny things (minor recommendations) to keep you and trade publications that rehash media releases happy, which by the way also help those as well that funded the report..

They also advertise on this website. Like the FSC, Money Management is hopelessly conflicted when reporting these issues.

Your view may not be correct. CA s961B(2) clearly states the adviser must 'prove' they have done each of the 'stated safe harbour steps' - that the law. RG175.277 - 278. If the adviser does not wish to use the thing called the 'safe harbour steps' they still must prove they have complied with 961B(2).

Eliminating the Safe Harbour provisions [SHP] misses the point and puts ASIC in an awkward position because they are designed to protect consumers. The real step forward that should be aired and discussed is the role of technology and how digital capturing of SHP is able to deliver lower cost outcomes for all. Map My Plan has already achieved this in it's digital advice platform that is available today so this is the subject matter the FSC and KPMG should be putting into the debate

So you're saying let's not remove an obvious problem, let's just buy more unnecessary technology to workaround that problem? Any technology providers that support bad regulation, in order to sell more of their own product, should be avoided by advice firms.

And please don't try to play the "consumer protection" card. It is patently obvious that Safe Harbour, like most of our current mess of bad regulation, ultimately does more to harm consumers than protect them. It makes professional advice too complex and expensive, and pushes consumers into the arms of unregulated shonks and scams.

Knoxy - do you have a conflict of interest - every comment you write includes references to 'Map My Plan'. Are you associated with this company and its just a case of 'self promotion'. Be honest now!

KPMG is also the residence of Paul Howe I believe. This report is to continue the positioning of their biggest clients ( the super funds) to provide more cut down, legislation lite, advice. This is first, then they lobby for carve outs, leaving retail advisers as normal to continue with the compliance burden. The FSC report also is timed to coincide with this.

It's not just the juxtaposition of the "black letter law" of safe harbour and the principles-based intent of the Code - licensees are reactive to the enforcement approach from ASIC, the very broad interpretations applied by AFCA and the black letter proof points required by the courts. Licensees necessarily go hard at risk management to adequately defend themselves and their advisers (and to keep their PI insurers on side). If we pretend for a moment that we don't have s961B(2) (safe harbour) and purely rely on s961B(1) and the Code. ASIC has a very black letter / tick-a-box approach to interpretation, compliance and enforcement. How do they prosecute a principles-based approach to compliance? A professional, qualified, diligent and ethical adviser can put hand on heart and speak to why a strategy was in their client's best interest. But ASIC, the courts, the PI insurers and AFCA rely on evidence. What proof-points adequately demonstrate that an adviser has acted in their clients best interest? For instance, would ASIC look at a strategy where an adviser recommended their client invest their windfall gain in super or investments on which the adviser charges an asset-based fee (rather than pay down debt) as a conflict (even if the strategy had merit). My view is, until we understand how these bodies intend to prosecute a principles-based professional and ethical duty, licensees will continue to potentially overshoot the mark and we will not see a simplification of the advice process and the cost reductions needed to increase access to advice.

Good points, but I think the underlying issue is that most decision makers in ASIC, AFCA and the Courts, egged on by lobbyists and activists, have a strong bias against commissions, asset based fees, and inhouse products. Even though these things are perfectly legal and non harmful in most cases, and actually better for clients in many situations, enforcement bodies will look for black letter excuses to persecute advisers who use them.

The easiest way for advisers to remove regulatory persecution risk is not through ever more convoluted compliance processes, it is by removing commissions, asset based fees, and inhouse products from their business. Unfortunately that will mean a loss of potential benefits for some consumers, but the poor old consumer has no-one standing up for their real interests anymore.

still fiddling while Rome burns...

Best comment here buddy - this is all a yawn fest. The countdown to Jan 2026 is on. To all the advisers out there, pick your best 100-150 clients, tell the rest your sorry and just keep your head down. If our over lords want another piece of paper signed, just get it done.

Removing the safe harbour will do nothing. FASEA embedded the 7 steps into the code of ethics. So ASIC, ACFA, licensees, PI insurers and auditors will not allow financial planners to reduce red tape and use their professional judgement.

This is what other 'professions' look like:
Doctor - Spend 30 minutes in waiting room, have a 3 minute consult, receive a script for prescription, pay at the counter on the way out. Self administer the medicine and hope it works out.
Lawyer - Ask for a Will, get a Cleardocs cut and paste document, pay at the counter on the way out. Hope like crazy it includes provisions for your personal situation because you were never asked for the detail of what is going on with the rest of your family and whether their beneficial entitlements carry inherent risk of loss. But you will be dead so who will argue for you if it was rubbish?
Accountant - Ask for tax planning advice, get a tax return. Complain that they should have told you about all of the sensible ways to manage taxation only to learn that there is no complaints body available to hear your plight. You are on your own to take legal action or let it go.
Financial Adviser - Ask if you are on track for retirement. Have multiple meetings, all of which are recorded and minuted, receive an 85 page document that hopefully satisfies a regulator that clearly does not understand the question. But, leave knowing that you should have your Estate planning reviewed to take into account your situation, your wishes and your beneficiaries situations, including medical POA's just in case your doctor got it wrong, finally understand what all of the actual fees and charges are on your retirement savings, have your insurances completely reviewed in relation to your insurance needs, learn that you should have been paying an extra $$$ per week off your mortgage and salary sacrificing to superannuation ......you get the picture.

No other profession in the country needs to address more areas than ours for clients, yet the regulator and politicians thinks that consumer protection comes from levies and additional regulations. All because product issuers got greedy in the 90's and through in-house licensing and restrictive APLs had advisers do their bidding.
Surely the regulators can see that the era of institutional licensees is almost over and with it will go the problems of the past. If only they would lift the lid on the vertical integration of Industry superannuation and expose the conflicts there,, but that is too big an opponent for the regulator and there is no support from the left to do it anyway.

And if you are a Doctor, Lawyer or Accountant and take offence to my generalisations, then how do you think advisers feel every time some unlicensed a##hole defrauds somebody and the media call them a financial adviser?
Rant over.

Spot on

I think this is a good analogy using other professions which can at times be akin to a sausage factory. FSC and KPMG are renters at best in the scheme of things. Is there any merit of throwing it all out and just focusing on the simplification of the disclaimers (what you get and don't get) and professional negligence laws (which provides for personal liability)? If you deal with the wrong doctor, lawyer or accountant you should get the equivalent result.

Hi Anon
I think the early Robo advice players are what you are referring to - they tended to be ETF portfolios with a front end wand whatever the question was the client ended up in an investment portfolio. The ones I'm referring to work with advisers not against them and have no product connected or recommended. They concentrate on Aussies who want better financial control and well being but don't have the complexity where an adviser needs to step in. Debt reduction, insurance needs (no recommendation), savings impact, super comparisons etc. After the user works out their direction they may call upon an adviser - but a reverse fact find is already in play and the whole ridiculous SoA process doesn't start again as the technology AFSL holder has issued it. Worth watching the new breed not the old Robo's? Keep an open mind and Good luck

You have to remember who this report was written for....These large institutions were kicked out of Advice by the Royal Commission so what we're seeing now is the strategy to drive out Advisers and replace them all with online tools, and scaled advice....I will definitely agree that there are many good recommendations and also good suggestions in this report but it's commissioned by the Financial Services Council for the FSC. Please don't grasp onto one piece and cling to it. This "opinion piece" will be merely used by those firms that exited Advice so that can water down legislation, with the overall objective of re-entering the market place, after you've been eliminated.

Better still. Make upfront/initial advise tax deductible instead of it currently being a capital expense.

I got sucked in by the nice headlines but this is really like Hesta commissioning a report to find out if advice is valuable with the conclusion being yes it is, (which has been academically proven) but it's too costly and the solution is more Hesta like delivery of advice. There are some excellent data and recommendations which I support, but it should not be a distraction as to what will improve outcomes for all Australians. Let's remember members of the Financial Services Council were kicked out of advice at the Royal Commission and now there trying to enter it by the back door.

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